Written by Jason Morris on Friday May 6, 2016
A good way to get an eye-catching headline these days is to carry out some research predicting the death of cash, now that we are all abandoning notes and coins in favour of smartphone apps, contactless cards and mobile payments.
A quick Google search brings up a couple of recent predictions of when the death of cash might occur – 2025 (the UK’s Lloyds Bank) or 2030 (technology organisation IEEE), for example.
Meanwhile, according to the director of retail banking at DNB, Norway’s largest bank, with only 6% of its customers using cash daily – and much of the cash that is in circulation thought to be in the underground economy or involved in money laundering – it’s time to start the debate about phasing it out.
But look at issue another way. According to the European Central Bank’s (ECB) latest statistics, the number and value of euro notes and coins in circulation has been growing steadily over the last five years.
And according to the ATM Industry Association (ATMIA), which has members in 65 countries, including in Europe, the demand for cash is growing three times faster than economic growth. Last year, it analysed the amount of money in circulation in 30 countries – both advanced and developing – between 2009 and 2013 and found the average growth rate year-on-year rate was 8.9%, compared with just 3% for economic growth.
So it seems that reports of the death of cash have been at least slightly exaggerated. But if cash remains popular with consumers, it is even more so with criminals, who love its anonymity and its adaptability when it comes to money laundering.
The ‘raw material’ of crime
In its October 2015 report Money Laundering Through the Physical Transportation of Cash, the Financial Action Task Force estimated the amount of money involved as hundreds of billions of dollars globally.
It described cash as ‘the raw material of most criminal activity’ and warned that as anti money laundering measures around the world become even more stringent, money laundering through physically moving cash will become increasingly attractive to criminals.
So given that cash is still with us for the foreseeable future, how can the authorities put hurdles in the way of the money launderers?
Well, the ECB has just taken a fairly significant step, by announcing this week that it is to stop producing and issuing the €500 note, a popular choice for moving illegal proceeds around and in money laundering. The measure will be implemented towards the end of 2018; the €500 note will remain legal tender.
European action: Money Laundering Directives
The European Union’s Third Anti-Money Laundering Directive covers dealers in high-value goods, such as works of art, precious stones or auctioneers, so that they must carry out steps such as checking the identity of customers and keeping records of transactions when receiving cash payments of €15,000 or more.
The Fourth Anti-Money Laundering Directive, which the European Commission is urging member states to commit to implementing by the end of 2016, notes the vulnerability of large cash payments to money laundering and terrorist financing and with this in mind, has extended its coverage to cash payments of €10,000 or more.
Given the money laundering risks, €10,000 might seem quite a high threshold and some EU member states have taken advantage of freedom to adopt stricter arrangements. Others, like Germany, have taken a more relaxed stance, at least until now.
The picture in Germany
Despite the attractions of new payment methods, Germans clearly retain their fondness for cash. Speaking to Frankfurter Allgemeine Zeitung in January 2016, Deutsche Bundesbank's president Jens Weidmann commented on the quickness and simplicity of cash, adding: ‘Compared with their fellow Europeans, Germans exhibit a marked preference for coins and notes…79% of the payment they make are effected using cash.’
But this more intensive use of cash in Germany, and the absence of any limit on the size of cash transaction, have been seen as making the country more attractive to money launderers, with a recent report ranking it second highest for money laundering risk out of 15 European countries assessed and commenting that it offered ‘a diverse menu of options for concealing ownership and laundering money’.
In one case, in March 2016, German authorities and Europol worked together to close down an Iraqi organised crime group suspected of laundering an estimated €5 million on behalf of international drug traffickers. A recent German study has suggested the annual money laundering total was likely to approach more than €100 billion a year.
Yet despite the vulnerabilities linked to the preference for cash, proposals earlier this year of a limit of €5,000 for cash hit strong opposition, including a ‘Hands off our cash!’ open letter in Bild that included among reasons for not imposing a limit that it protects against nannying by the state and that it showed distrust in German citizens.
Despite this resistance at home, Germany and France took leading roles at a February 2016 meeting of the EU’s Economic and Financial Affairs Council, which, among other measures, urged the European Commission to explore the need for EU-wide restrictions on cash payments.
What does the future hold for cash?
The ways we pay are rapidly changing and the pace of innovation in technology means that what seems new and exciting now could well be regarded as old fashioned in just a few years.
The global focus on combating money laundering, the financing of terrorism, tax evasion and other financial crime is also likely to increase pressure to phase out cash as a key ‘raw material’ of crime.
At the same time, the efficiency, accessibility, anonymity and familiarity of cash suggest that it will be with us for some time to come, with convenience and flexibility balanced against stricter due diligence around larger transactions and the disappearance of high denomination notes.
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