Is there room for cash payment in the future? | Hogan Lovells


[co-author: Boris Urquizu Barquet]

The recent initiative of the Spanish Socialist parliamentary group to gradually eliminate cash payment on the horizon of its complete disappearance has opened an intense debate in Spain. Is the disappearance of cash possible? Are cash being replaced by electronic means of payment? Has the COVID-19 crisis had an impact on the decrease in the use of cash? These are some of the most common questions that appear in the media and are answered in this note.

“The payment in cash phased out, on the horizon of its definitive disappearance”. This is one of the eleven measures that the Spanish Socialist Parliamentary Group proposed to the plenary debate of the Spanish Congress of Deputies, in its non-law proposal on the orientation of the tax system in the light of the crisis caused by COVID-19.

If we add to this non-law proposal the failed initiative presented at the end of 2018 to lower the current ceiling for cash payments from 2,500 euros to 1,000 euros, the governing party specifies that it has declared war on cash. .

The main reason for these measures is, as has been said, the fight against tax evasion. The objective is to put an end to the parallel economy in Spain which, according to the majority of studies, represents between 19% and 24% of the Spanish GDP.

Another reason that has reinforced the government’s intentions is the uncertainty generated by the appearance of COVID-19 and its possible transmission through money. Since organizations such as the World Health Organization have recommended payment by card to avoid contact by coins and notes and even some autonomous communities such as the Community of Madrid have banned cash payment on their bus lines . And the truth is that, although many scientists and even the European Central Bank have called for calm saying that banknotes do not pose a significant risk of infection compared to other surfaces, the demand for cash has dropped significantly. these last months.

This decrease in strict cash payments has inevitably been accompanied by an increase in card payments and instant payment applications such as Bizum. Indeed, the Spanish banking authorities have decided to increase the minimum ceiling for payment by card from 20 to 50 euros to favor this option, an initiative supported by the European Banking Authority.

However, these are not specific measures adopted as a result of COVID-19, but rather a trend that has manifested itself with great intensity over the past five years. To give you an idea, in 2019 there was a 16.2% increase in the number of card transactions compared to the previous year, which also means a 9.44% increase in the monetary value of these transactions. If we compare the number of transactions and their value last year with those of 2002 (the first year the Bank of Spain started collecting this data), we see a 357.5% increase in the number of transactions (from 991 million to 4,536 million transactions) and a 244.5% increase in the total value of these transactions (from 46,828.8 MEUR to 161,343 MEUR). Alongside this reality, we see that in the past year nearly a thousand bank branches have been closed, reaching 50,500, 11,000 less than in 2008.

Notwithstanding all of the above, it does not appear that cash will disappear in the short to medium term, as this would violate the provisions of the Treaty on the Functioning of the European Union, which states that banknotes and coins are legal tender. , as well as the criteria of the European Commission, which stipulates that “acceptance of euro banknotes and coins is the payment rule in retail transactions”. In 2019, the ECB also spoke out against the reduction of the cash payment ceiling from 2,500 euros to 1,000 euros proposed by the Spanish Socialist Group.

In conclusion, we are undeniably faced with a very favorable environment for an increasingly strong expansion of electronic payment systems. An expansion that will have to be controlled and combined, at least as long as the European Union does not change its criteria, with cash payments.

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