Should Spain limit payments in cash? View from ECB

ECB puts up its decisions on legal matters pertaining to money on its website which are a must follow.

In the recent one, ECB is asked to review the recent Spain draft policy to limit cash payments.

On 28 November 2018 the European Central Bank (ECB) received a request from the Banco de España,
on behalf of the Spanish State Secretary for Finance, for an opinion on a draft law on measures for the
prevention of and fight against fiscal fraud, transposing Council Directive (EU) 2016/1164 of July 2016
laying down rules against tax avoidance practices that directly affect the functioning of the internal market
and Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the
European Union, and on the amendment of specific tax rules (hereinafter the ‘draft law’).

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the
Functioning of the European Union and the second indent of Article 2(1) of Council Decision 98/415/EC1
as the draft law relates to means of payment.

ECB says one should implement the policy after proper reason and rationale:

The ECB acknowledges that the draft law’s objective of preventing and combating tax evasion may,
in general, constitute a ‘public reason’ justifying the establishment of limitations on cash payments.
The ECB also considers that other lawful means for the settlement of monetary debts are available
in Spain8. However, these other means may have different characteristics compared to cash and are
not in all cases fully equivalent alternatives to cash payments.

2.5 Limitations on cash payments should, additionally, fulfil the proportionality requirement described in
paragraph 2.3 above, especially in view of the fact that the measures set out in the draft law affect
transactions between natural persons and involve payments of relatively small amounts. Any
negative impact of the proposed limitations should therefore be carefully weighed against the
anticipated public benefits. When considering whether a limitation is proportionate, the adverse
impact of the limitation in question should always be considered, as well as whether alternative
measures could be adopted that would fulfil the relevant objective and have a less adverse impact9
.
2.6 Furthermore, it should be borne in mind that the ability to pay in cash remains particularly important
for certain groups in society that, for various legitimate reasons, prefer to use cash rather than other
payment instruments. Cash is generally also appreciated as a payment instrument because it is
widely accepted, fast and facilitates control over the payer’s spending. Moreover, it is a means of
payment that allows citizens to instantly settle a transaction and is the only method of settlement in
central bank money and at face value which does not carry the legal possibility of imposing a fee for
the use of this means of payment. Also, cash payments do not require a functional technical
infrastructure and related investment, and are always available; this is of particular relevance in the
case of outage of electronic payments. Additionally, cash payments facilitate the inclusion of the
entire population in the economy by allowing it to settle any kind of financial transaction in this way.

This is so unlike other countries where such laws are being implemented without any proper analysis and reason.  It is also interesting how the ECB Treaty ensures that all monetary matters of member economies have to come to ECB for review and view. For instance the Spanish authorities could have just passed this policy without taking their central bank into account. But as they are members of the EMU they have to get views of ECB on all monetary and payment matters.

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