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German Government Proposes, Controversially, to Limit Use of Cash Payments (2/11)     Print Email

By Ben Antenore, European Affairs Editorial Assistant

Last week, the German Finance Ministry proposed limiting cash payments in Germany to €5,000. The objective is to combat money laundering and better monitor the financing of terrorism. Throughout Europe, particularly in Scandinavia, there has been a move towards the elimination of cash as a method of payment. In Italy, the government of Prime Minister Mario Monti limited cash payments to €1,000 in an effort to stop tax evasion in 2011. Italy loses €100 billion in unpaid taxes every year. Since then, however, Prime Minister Matteo Renzi’s government has raised limits to €2,999.99.

In Germany, substantial opposition has risen to the proposal. Last Monday, the Bild, a popular German tabloid, published an open letter titled “hands off our cash” which encouraged readers to sign it, cut it out, and then send it to Wolfgang Schäuble, the finance minister. Parties ranging the political spectrum, from the Green Party to Eurosceptic Alternative für Deutschland, have come out in protest, claiming that the proposal represents an assault on privacy. Even the president of the Deutsche Bundesbank (Germany’s central bank), Jens Weidmann, is skeptical of the Finance Ministry proposal, stating in an interview with Bild, “It would be fatal if citizens got the impression that cash is being gradually taken away from them.”

While the cash-free transition in Scandinavia has received widespread praise, societal practices in Sweden and Norway have facilitated the project. In an interview with the newspaper Verden’s Gang, an executive of Norway’s largest bank, DNB, Trond Bentestuen said that only about 6% of the Norwegian population uses cash, and of that 6%, usage is skewed highly toward the elderly. Transformations in the way citizens thought about money allowed major banks like DNB to stop carrying cash at its branches. Germany couldn’t be further from Norway when it comes to prevalence of cash. According to a recent survey conducted by Bundesbank, 79% of payments in Germany are made in cash. Even among 14 to 24 year-olds, the group most favoring electronic currency in Scandinavia, 2/3 say they prefer paying in cash. Even compared to countries not at the forefront of the cash-less revolution, German stands out in its attachment to paper currency. In a report released by the U.S. Federal Reserve in 2014, the average German holds almost twice as much cash (approximately $123) in his or her wallet as their counterparts in the US, France, and the Netherlands. Almost 80% of all transactions are conducted with cash in Germany.

Analysts from the European Central Bank believe German attachment to cash may have something to do with the ease of keeping track of spending when you only have to check your wallet: “A glance into one’s pocket provides a signal about the extent of expenses and the remaining budget. With a large cash share of expenditures, the quality of the signal is high. We conjecture that for some consumers this signal is of value and hence they choose to use cash.” An explanation may also be found in Germany’s history. Memories of hyperinflation in the Weimar Republic, when a loaf of bread cost 428 billion marks and cash was almost worthless are contrasted with the high value of money today. Germans also have an aversion to debt, which is more easily accrued through the usage of credit cards and other electronic methods of payment. In 2013, only 18% of all payments in Germany were made via credit card.

Cash money may be on the way out, but abolition of folding money may take longer in Germany.