Written by Simone Jones 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, such as France, have taken advantage of freedom to adopt much stricter arrangements.
The picture in Switzerland
So how does a non-EU nation like Switzerland approach the issue? Despite its status as a leading international finance centre, Switzerland perhaps surprisingly takes a relaxed attitude towards cash transactions, despite the scope these offer to money launderers and other financial criminals.
A maximum amount for anonymous cash transactions was imposed on 1 January this year, but the limit has been set very high, at those above CHF100,000.
The ceiling would seem to reflect Swiss affection for cash, including for the high value notes – the CHF1,000 note is the most valuable note in the world still being issued – that have been linked to money laundering and other financial crime. The Swiss National Bank this month began circulating a new CHF50 note, the first in a series of new notes scheduled to be completed in 2019, that will include an updated CHF1,000.
Thomas J. Jordan, chairman of the bank’s governing board, gave an insight into the Swiss relationship with at an April news conference on the revamped notes: ‘Despite rapid technological developments in the payments arena, cash has yet to be superseded…it is still a widely used and popular option in Switzerland.
‘People regularly use cash as a means of payment in shops and restaurants or when travelling by train, for instance. It is also widely used for automobile purchases and in agriculture. Cash remains an efficient form of payment in many of these situations. What’s more, banknote circulation in our country has increased steadily in recent years.’
Nevertheless, with the ECB deciding to discontinue the €500 note, and with the Swiss franc identified as one of the currencies most frequently found in consignments of criminal cash, it will be interesting to see whether Switzerland reviews its position on the CHF1,000.
Switzerland has been moving to strengthen its regimes to combat money laundering and terrorist financing, introducing new measures in 2015 and 2016, including the cash transaction ceiling. The country has just undergone an on-site visit by the Financial Action Task Force (FATF) as part of its latest mutual evaluation, so FATF may well have more to say on cash-related issues in its report in the near future.
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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