The cash cap: advantages, disadvantages, and current status

Large cash payments are a thorn in the side of many governments. Because cash payments cannot be traced by authorities and thus could theoretically facilitate the use of black money, money laundering or other criminal payments. On the other hand, there are also clear advantages that support paying with cash: for example, data protection, protection of privacy or personal freedom in general, as well as easy access even for people who do not have the Internet and smartphones.

Cash is very popular

In Germany there are many surveys that confirm that most citizens would at least like to be able to choose whether they want to pay with cash or other methods. According to a survey by Handelsblatt, almost 70% of Germans prefer cash. Deutsche Bundesbank came to a similar conclusion. The study “Payment Behavior in Germany 2021” shows that cashless payments are on the rise, but more than half of all payment transactions are still made with cash.

The current situation at home and abroad

In Spain and France, cash payments of more than 1,000 euros have already been banned, except between individuals or tourists. In these countries, they are allowed to pay up to 10,000 euros in cash. Italy also wants to lower its cash limit from €2,000 to €1,000, although new Prime Minister Giorgia Meloni has new plans and wants the limit raised again to €10,000.

In Germany, for cash payments of €10,000 or more, there is already a requirement that anyone accepting cash of that amount or more in cash must verify the identity of the payer. The merchant must record, store and provide payer data as well, if required by the authorities. These regulations are expected to be tightened. For the purchase of gold, raw materials or precious metals, this regulation has been applied since 2020 from the payment of 2000 euros.

The Plan: The federal government wants to cap cash payments

The current federal government, more specifically Federal Interior Minister Nancy Weser (SPD), would like to allow only cash payments of up to €10,000 in the future. This aims to reduce money laundering and other criminal activities. Many consumer advocates are already criticizing the move. This offers many advantages and disadvantages (see below), which must be carefully weighed against each other.

Benefits: Reduced crime and money laundering?

The Federal Ministry of the Interior and the EU Commission identify the fight against criminal transactions, illegal financial payments and money laundering as the main advantage of the cash limit. However, if it is only possible to pay up to €10,000 in cash, it is expected that criminals will look for other ways to launder their money. Cryptocurrency, splitting payments into €10,000 (splitting a large payment into many small payments is common in party donations, for example) or going offshore are just a few examples. The government wants to go ahead at this point and completely ban paying for real estate with cash and cryptocurrency. The signs of the times are clear: the German government and other European governments as well as the EU Commission want to restrict cash payments.

This should effectively combat fraud, money laundering and tax evasion. Added to this are the taxes that the state evades through black money payments. The share of this shadow economy in Germany is estimated at between 10 and 15 percent of GDP. Germany’s GDP will be around €3.6 trillion in 2021. In the 38 OECD member states, the share of the informal economy in 2015 ranged between 5.9 and 22.4 percent. This shows how much tax we all lose because of the informal economy. Maximum Cash can certainly improve a bit in this area.

Do we also lose our freedom to pay cash?

Consumer advocates criticize the new regulations, saying that paying cash is generally suspect, and every citizen who pays cash is suspected of doing something illegal. In addition, once limits are introduced, they can be lowered further very quickly. 10,000 euros to pay cash for a used car quickly turns into 5,000 euros, so that in reality it is only possible to pay electronically. This encourages a surveillance state, where financial and law enforcement authorities already have access to the account records of citizens and businesses. If cards or other digital access are blocked, it’s easy to prevent payment for certain things, even if cash is no longer allowed.

Paying cash is common, especially when buying a used car and sometimes when buying a new one. The cash limit makes buying a car more complicated for many buyers and sellers, consumer advocates fear.

Possession of coins is not prohibited, but…

Currently, governments in Europe and Germany have no plan to restrict cash holdings or limit the ability to deposit cash into an account. However, it has been mandatory since 2021 for customer deposits of €10,000 or more to be recorded. These limits can also be pushed down at any time. Banks are required to ask customers to prove the source of funds. Within the EU, travelers must notify border officials if they are carrying more than €10,000. If the flight goes abroad, cash payment must be declared in writing to customs.

Cash becomes more reliable in times of crisis and power outages

It is clear that in times of crisis, cash is more reliable and easier to use than electronic means of payment. In the event of failure of the payment systems, payment by electronic means is no longer possible, but cash can be paid. Such failures have happened frequently in the past. In May 2022, a large proportion of all electronic payment transactions nationwide were not possible due to terminal failures from US provider Verifone. At the regional level, there are always disruptions at stations and even at individual stores or gas stations, and card payment does not always work reliably if data transmission is disrupted.

Given the current situation in the energy markets, regional power outages are at least not entirely excluded. On behalf of the Federal Ministry of Economics, the four transmission system operators checked the security of the power grid this winter under more severe external conditions in the special analysis (“stress test”). The result of this analysis is that an hourly crisis in the electricity system is unlikely in the winter of 2022/23, but it cannot be completely ruled out. This can make all electronic payment transactions impossible.

The Federal Office for Civil Protection and Disaster Assistance (BBK) explicitly recommends this in its guide: “Remember to have enough cash reserves at home, because ATMs will not work in the event of a power outage.”

All of this goes to show that the cash cap is not without problems. Especially in a situation of crises like the one we are facing now.