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Frankfurt am Main | 16.02.2018

Carl-Ludwig Thiele: Unreasonable to demand wholesale abolition of cash

Cash symposium 2018

Bundesbank Executive Board member Carl-Ludwig Thiele says it would be a bad idea to abolish cash. Besides being highly risky, the drawbacks would far outweigh the benefits, Mr Thiele said at the Bundesbank's fourth cash symposium, "Cash is minted freedom. There is absolutely no doubt in my mind that cash will still matter in the future," he declared.

Cash still the number one means of payment

Carl-Ludwig Thiele during the panel discussion [+] Carl-Ludwig Thiele during the panel discussion Mr Thiele noted that cash remains the most frequently used means of payment, pointing to the results of the Bundesbank's latest survey on payment behaviour in Germany. This survey, which asked more than 2,000 people about their payment habits in 2017, found that consumers in Germany pay for around 74% of their purchases in cash. Cashless forms of payment are continuing to gain ground, though, particularly for larger payments of €50 and more. In 2017, consumers used a debit card for 35% of all their payments, up from just 26% back in 2008. "This proves one thing above all: the German public tend to use payment methods they are familiar with," Mr Thiele said.

Digital money is no alternative

Bundesbank President Jens Weidmann was equally confident that cash will endure as an attractive and frequently used means of payment, saying that he does not see digital money as a serious competitor for cash or bank deposits in the foreseeable future. If central banks begin issuing digital central bank money, this could have very far-reaching implications for the financial sector and thus also for monetary policy, he warned. The biggest threat to financial stability this would entail is the possibility of a digital bank run, where investors want to withdraw or transfer their money as quickly as possible. "In a digital bank run, all it takes is a few mouse clicks to transfer savings out of the private financial system and into a central bank account," Mr Weidmann said.

Turning to the current debate surrounding virtual currencies such as Bitcoin, the Bundesbank President reiterated his view that they are unsuitable as a means of payment and store of value. In Mr Weidmann's eyes, a more appropriate name for virtual currencies is "crypto tokens", given how they do not fulfil the traditional functions of a currency and are more of a speculative plaything. "Buy them and you risk losing some, or perhaps even all of your investment," he said. Mr Weidmann rejected calls to ban crypto tokens, however, insisting that more information needs to be made available for investors, in the interests of improving consumer protection. It is also important to ensure that the existing anti-money laundering provisions are rigorously upheld, Mr Weidmann argued.

Cash facilitates freedom

ECB Executive Board member Yves Mersch used his speech to emphasise the important role that cash plays in the exercise of fundamental rights. "Cash allows privacy and thus safeguards fundamental rights, such as the right to 'informational self-determination', freedom of action and freedom of speech," Mr Mersch said. He rejected widespread claims that cash aids and abets criminal activity, noting that no particular link can be established statistically between cash and criminal activities. In Mr Mersch's eyes, cash also fosters equality and participation, since cash is easily accessible to all levels of society, including the socially vulnerable.

The idea of cash as a form of freedom was echoed by Udo Di Fabio, a former judge at Germany's Federal Constitutional Court, who said it is essential for citizens to retain their freedom of choice. "We mustn't force people to be part of a system in which they are constantly leaving behind a trail," Mr Di Fabio warned. Abolishing cash would therefore be a violation of the state's duty to maintain suitable infrastructure for the protection of personal rights.

Inspiring and maintaining confidence

For Mr Thiele, the main thing is ultimately to have confidence in a currency. New technologies, he feels, should always be judged in terms of their ability to inspire and maintain confidence. "Cash doesn't belong to central banks – they provide it as a means of payment. It belongs to the people," he concluded.