The European Central Bank (ECB) rejected on February 1, 2019. The then president of the ECB, Mario Draghi, sent an opinion to Spain in which he asked the government to stop the measure and warned of serious risks for the European currency and certain economic sectors.
The document, to which the Economist has had access, emphasizes that lowering the limitation of cash payments to 1,000 euros in operations in which the payer acts as a businessman or professional – as stated in the bill approved in the last Council of Ministers- “is disproportionate”. The ECB highlights its “possible adverse impact” on the cash payment system.
Goes against legal tender
The Supervisor warns of the risk of the Spanish measure for the European currency. “This limitation makes it difficult to settle legitimate operations using cash as a means of payment, thus endangering the concept of legal tender,” stresses the European Central Bank.
The Bank denies that this measure has a place in the European anti-fraud regulations. The ECB reminds Spain that the limit for companies established in the is at 10,000 euros. “Transactions with large sums of cash can be used for money laundering and terrorist financing, which requires that persons who deal in goods, who are not bound by said directive, are considered obliged entities, and apply due diligence measures with respect to their clients”, acknowledges the ECB’s opinion. However, it specifies that the regulations establish that these controls can be imposed on companies “only if they make or receive cash payments equal to or greater than 10,000 euros.”
Damage to economic sectors
On the other hand, the opinion of the European Central Bank warns of the danger of the cash limit for various economic sectors. The document points to the “disadvantage that it may entail for the ordinary operations of certain market segments.”
In addition, it criticizes the possibility of collapse in certain situations in which it is difficult to make electronic payments. “As experience in the Union teaches, certain cashless means of payment suffer temporary interruptions, as they are based on the technical infrastructure managed by payment service providers,” explains the ECB. “In the face of such contingencies, it may be necessary to carry out cash operations that exceed the limitations on cash payments,” says the Supervisor before the Spanish measure.
The Government, for its part, ignores these recommendations of the Supervisor. The Minister of Finance, María Jesús Montero, of professionals and companies. The Council of Ministers approved it and has already sent it to the Congress of Deputies. “The idea is to lower cash payments to their minimum expression,” said the minister.
“Cash continues to be very important for certain social sectors,” stresses the ECB
The ECB answers that “the possibility of paying in cash continues to be very important for certain social sectors that, for various and legitimate reasons, prefer to use cash instead of other means of payment.” In his opinion, “cash is also generally appreciated as a means of payment because it is widely accepted and fast and because it allows the payer to control his spending.” The European Central Bank points out that it is a means of payment that allows citizens to settle operations instantly, and the only means of payment in central bank money and at its nominal value that does not entail the legal possibility of charging a commission for its use. “Cash payment does not require a functional technical infrastructure and can always be used, which is very important,” he concludes.
Brussels rejects the measure
The European Commission considers, along the same lines as the European Central Bank (ECB), that the Treasury limit on cash payments violates the principles of the Treaty on European Union, which establishes that euro banknotes and coins are of course legal, which would make it impossible for the Government to take this measure. The central banks have insisted during this pandemic on the importance of the use of cash so that all households have access to all services. During the most critical moments of the first wave of Covid-19 in Europe, there was a certain rejection of the use of cash for fear of contagion.
La, when it determined that “the rule should be the acceptance of euro banknotes and coins as a means of payment in retail transactions… The refusal of this form of payment should only be possible if it is based on reasons related to the principle in good faith, as the retailer (business, store…) does not have any change available”, maintains the European Commission.
The measure approved on Tuesday
The Moncloa Bill modifies the cash payment limitation for certain economic operations that will go from 2,500 to 1,000 euros, in the case of operations between businessmen.
The Ministry maintains that the use of means of payment in cash “facilitates fraudulent behavior, in order to deepen the fight against fraud, the general limit of this type of payment is lowered.” For this reason, the Minister of Finance, María Jesús Montero, presented the project on Tuesday in the Council of Ministers. In this way, to minimize the collateral effects in small domestic economies, the limit of 2,500 euros is maintained for payments made by individuals.
The cash payment limit is also reduced from 15,000 to 10,000 euros in the case of individuals with tax domicile outside of Spain. Thus, the aim is to restrict these operations which, being in cash, are more difficult to trace and, according to the Government, facilitate fraud.
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