by Don Quijones, Wolf Street:
Germany loves physical money. According to a Bundesbank study, approximately 80% of payments in Germany are made in cash. Even among millennials, two-thirds say they prefer paying in cash to electronic means, a much higher level than in almost any other advanced economy with the exception of Japan.
This is a big problem for a European establishment that is desperate to consign physical money to the scrap heap. Some countries, including France and Spain, have already set maximum cash limits of €1,000. Greece has dropped its cap for cash transactions from €1,500 to €500.
In January the European Commission telegraphed its intention to implement a mandatory continent-wide limit by 2018, even if it violates the “non-fundamental” rights of over 500 million EU citizens to privacy, anonymity, and personal freedom. The Commission’s plans are likely to meet strong resistance from certain quarters, in particular Germans.
When the Merkel government merely suggested last year that it was considering banning cash payments above €5,000, it triggered a fierce public backlash. The country’s biggest tabloid, Bild, published a scathing open letter titled “Hands Off Our Cash,” while a broad spectrum of political parties condemned the proposed measures as an attack on data protection and privacy.
Even the head of the Bunderbank, Jens Weidmann, criticized the government’s proposals, telling Bild (emphasis added): “It would be fatal if citizens got the impression that cash is being gradually taken away from them.”
Most central bankers do not share Weidmann’s misgivings. On the contrary, most central banks and the big banks whose interests they largely represent are one of three elite groups that are currently waging an existential war against physical money — the other two being the electronic payments industry and government itself.
The main reason for central bankers’ distaste for cash is that it significantly limits their ability to continue conducting arguably the greatest financial heist of the modern age, i.e., negative interest rate policy (NIRP). In a public speech in 2015 Andrew Haldane, chief economist at the Bank of England, admitted as much, arguing that banning cash altogether would give central banks greater “flexibility” in the event of a new crisis.
But the Bundesbank seems to have a very different perspective on the matter, for an obvious reason: it is one of the world’s biggest manufacturers of cash. Since the introduction of the euro in 2002 it has put a net €327 billion into circulation above its on-paper allocation. In total, 592 billion of the 1.1 trillion euros worth of banknotes in circulation at the end of 2016 started life at the Bundesbank.
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