In the 2019 Austrian National Council election campaign, proposals were made by the former governing parties ÖVP and FPÖ to anchor the use of cash in the constitution. Before taking office, the designated Governor of the OeNB also stated that he considered cash to be indispensable as a means of payment.

The love of Austrians for cash is neither new nor unusual - in other countries (such as Japan or Italy) people also like to pay with notes and coins. And even in Sweden, where cash in circulation has fallen significantly, resistance to its abolition is growing. The movement "Cash Uprising" (kontantupproret.se) was founded by former Reich Police Chief and Interpol President Björn Eriksson and fights against the disappearance of cash. And the National Bank of Sweden (Riksbank) is considering the introduction of the digital eKrona - not because it wants to abolish cash, but to preserve the advantages of cash (such as direct access to central bank money).

But what are the common concerns and arguments for and against abolishing cash?

Hygiene

A common argument against cash is also the weakest: that cash is unhygienic and therefore hazardous to health. Intuitively, this statement makes sense and it initially seems to be supported by studies. In 2013, for example, researchers at New York University (the so-called "Dirty Money Project") detected almost 3,000 types of bacteria on US dollar bills. 

However, although many types of bacteria can be detected on banknotes, the amount of individual bacteria is small and is normally not sufficient for a disease. In addition, the bacteria typically only reach the hands (as long as you do not put the bills in your mouth), but not into the body - just like those germs that are found in subways, on door handles, on public vending machines or are transmitted when shaking hands, or like those multi-resistant pathogens that can often lurk in hospitals. It is therefore not surprising that doctors call for regular hand washing, but not for the "withdrawal" of cash. 

This applies even to patients with significantly weakened immune systems, for example after a stem cell transplant - the corresponding guides warn in the first time against contact with crowds, sick people, animals or plants, but not against cash.

The few germs found on coins or banknotes are usually not enough to cause infections. On the contrary, they can train and strengthen the human immune system.

"Politicians want to take away our cash"

These or similarly formulated fears can be heard in political discourse. The background is formed by various developments and discussions, such as:

abolition of the EUR 500 note by the ECB-

trend towards digital payments, especially in Sweden (coupled with the fear that traders could no longer accept

- various discussions by economists and especially by the IMF regarding cash and negative interest rates (which are also unpopular in the general discourse)

However, there is no plan by the respective governments, the ECB or the IMF to abolish cash altogether:

- Proponents of the abolition of large banknotes hope that illegal activities such as undeclared work or terrorist financing can be made more difficult or reduced. This cannot therefore be regarded as a first step towards total abolition.

- The Swedish government does not want to abolish cash. Cash in circulation relative to GDP has been declining in Sweden for decades, and a strong push to digitize payments has been given since 2012 mainly by the mobile payment app Swish, which was launched by the banking sector. Offers such as Apple Pay, the implementation of instant transfers via TIPS or private initiatives (e.g. digital solutions for retail) could have a similar effect in our countries in the future.

Instead of wanting to abolish cash, the Riksbank's eKrona project aims at the opposite: the introduction of a "digital cash" that will continue to allow citizens a direct claim against the central bank (rather than against the banks) and at least partially preserve their anonymity (by using prepaid cards).

- Finally, in a study (paper), the IMF has dealt with the possibilities of pushing negative interest rates even lower, i.e. lowering the lower bound for interest rates (which is currently just below) even further. 

One obstacle to such a policy is cash, and therefore the paper discusses three options: the abolition of cash (which, however, is not proposed), the taxation of cash (whereby, for example, banknotes with certain serial numbers could be declared invalid every year) and a third possibility, which is to introduce an exchange rate between cash and electronic money. which would devalue cash in line with negative interest rates. A 100 EUR banknote would therefore only be worth as much as, for example, 97 EUR in digital money at a certain point in time.

Such a solution (and in general the entry into an even more systematic negative interest rate policy) would undoubtedly have to be discussed critically and with the utmost caution. Of course, a complete abolition of cash would not be associated with this - albeit a restriction of its store of value function. However, cash is also devalued by inflation, and the discussion about interest rates cannot be meaningfully isolated from that of inflation.

Finally, it should be noted that in other countries it is not political actors but private companies that are "accused" of wanting to abolish cash. In Sweden, there are such allegations against both banks and credit card providers (see Cards-on-the-Table Report). It is often pointed out that some studies on "unhygienic money" have been financed or disseminated by companies such as MasterCard - even if this certainly does not apply to each of these studies. 

CO2

There is also the argument from banks in Sweden that the transport of coins and banknotes would entail high CO2 emissions - Swedbank speaks of about 700 tons of CO2 per year. However, extensive data or independent studies do not yet exist.

Crime and anonymity 

The anonymous nature of cash can encourage various criminal activities (shadow economy) and, due to its physical nature, cash can be stolen. As mentioned above, the first problem could be alleviated by the abolition of larger banknotes - but this cannot prevent it.

With regard to the risk of theft, it should be noted that credit card fraud and similar criminal activities can lead to at least as much damage.

Conversely, as far as anonymity is concerned, there is the fear of many citizens that the abolition of cash will make them completely transparent citizens. However, as the Riksbank's considerations show, "digital cash" could also enable a certain degree of anonymity through the use of card products.

Costs for companies and banks

Cash comes with costs associated with handling, storage, and transportation, which can be potentially significant. With increasing acceptance of digital services, it can therefore become economically sensible for merchants, but also for banks, to cancel the acceptance of cash or make it more difficult.

However, it should be noted that there are also relevant costs for other means of payment (e.g. credit cards) and that cash is still a very fast and cheap means of payment. Everyone has probably experienced this at the supermarket checkout when the previous customer pulls out a card and has to enter a PIN. This is confirmed by a study by the Deutsche Bundesbank (study-payments-with-cash-are-fast-and-cheap) from 2019, according to which cash payment is still the fastest and most cost-effective means of payment at the checkout.

Access to digital means

of payment Critics of the "cash abolition" complain that not all people have equal access to bank accounts, credit cards or payment services. It mentions children, old people or migrants who would be discriminated against by the abolition of cash.

On the other hand, there are the following facts

- the increasing digitalisation: fewer and fewer people do not have the ability to use modern solutions and fewer and fewer people lack access to them; in Stockholm, even homeless people have been equipped with card readers for credit cards

as mentioned above, "digital cash" may also include card products for everyday payments -

discrimination or exclusion from the payment system could also be avoided by other policy measures.

Power outages, infrastructure problems

In our everyday lives, we are used to having access to electricity and the Internet practically at all times. However, this is by no means the case without exception. The network is weak in some places and "Murphy's law" should never be underestimated. It happened to the author of these lines, for example, during a business trip years ago that ATM card and credit card failed one after the other. Any payment method may fail in certain situations (emergencies), which can only be ruled out by maintaining a variety of channels and methods.

In the general debate, an essential economic aspect is strangely forgotten: cash is central bank money, a claim directly against the central bank, in contrast to deposits with a bank (or in a wallet), which are only partially protected (by deposit insurance).

Conclusion

Cash is an emotional issue, both for its supporters and its opponents. The eKrona project in Sweden seeks to digitally preserve two unique strengths of cash (anonymity and access to central bank money). However, as long as the problem of possible access problems (technically or for certain social classes) is not satisfactorily resolved, a complete abolition of cash cannot be expected or advocated.

In addition, the complex and unpredictable macroeconomic and monetary policy consequences of "digital cash" were not discussed here (for example, if bank customers withdraw their deposits more quickly in the event of a crisis; if the central bank competes with commercial banks in the case of interest-bearing digital cash, with effects on their business models; or if the negative interest rate regime were to be consolidated and deepened). For these and similar reasons, central banks in Denmark (see, for example, digital currency in denmark) or in Germany are still cautious when it comes to the digitization of central bank money.

It is therefore to be hoped that the debate about cash will be determined less by emotions and preferences and more by economic facts and analyses.

Questions or comments are welcome to:

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