Yet more incontrovertible evidence that €100, €200 and especially €500 euro notes are a curse, and that if the European Central Bank (ECB) keeps on printing them then it should be prosecuted under conspiracy laws.[From See how smart you are when the K-9s come]
I was recently sent a Bank of America Merrill Lynch Rates & Currencies Research Note by Athanasios Vamvakidis (dated 9th April 2013) entitled “Time to get rid of the €500 bill?”. Reading it, I see that my forward thinking policies on euro banknotes are gaining traction. In it, Athanasios says that
Although the ECB has no plans to remove the €500 bill from circulation, we argue that it should do so. It will weaken the euro, supporting the economy. It will address concerns that the bill is primarily used to hide illegal income. More importantly, we propose a scheme in which the removal of the bill will be a tax on illegal income, allowing using the proceeds to address the periphery crisis.
Which brings us back to Peter’s paper. Why hasn’t cash usage been falling in the supposedly developed EU economies? Peter says directly that “several Commission interventions have inadvertently created a blockage to raising more tax revenue and improving global EU payment efficiencies”. In other words, “we’re from the government and we’re here to help” has had its usual and entirely expected consequences.
The “Merchant Indifference Test” (MIT) is at the heart of this, as I was reminded in a conversation at EPCA. At dinner, a couple of people were reminiscing about “Proton”, the 1990s accounted electronic purse scheme that had been launched in Belgium. As one of my dinner companions pointed out, you could show merchants all the spreadsheets you liked proving that the electronic purse was cheaper than cash, it didn’t matter: the merchants didn’t want electronic money, they wanted cash because they didn’t want to pay tax. Cash wasn’t 2% or 5% or 10% cheaper than cards, it was 50% cheaper than cards. This is not recognised in the MIT, which makes it pointless.
Today a study suggested that the Belgian Government loses 30 billion euro every year through tax evasion and fraud (here). This is a big concern to me as I pay my exceptionally high taxes in Belgium and know what a difference 30bn would make to the average tax bill.[From Why prepaid could make 30bn EUR for the Belgian Government « in2payments]
Indeed. Furthermore, why the MIT should be used as input to regulation remains utterly opaque. Evidence was promised, but as Peter politely notes, when the study to produce this evidence did not deliver the results anticipated by the Commission after four years, it started work on another one (which is costing a couple of million euros). This is unlikely to deliver the concrete evidence that people like me would want to see. The cost of cash isn’t simply the cost of the merchants putting it in the till and banking it. What about the cost of robberies and policemen? The costs of tax evasion and other crime? These costs are so great, and the European economies are in so much trouble, that they can no longer be tolerated.
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