Future generations will be clueless about the clanking till in Pink Floyd’s Dark Side of the Moon.The last time I ate with my parents we talked about family, health issues, and, being Austrian, the presidential elections – a loaded issue for Austrians. But what got them worked up was the European Central Bank’s recent announcement to stop printing €500 bills.
“This is just the beginning,” fretted my mother. “Soon they will forbid us to use cash altogether.”
“They will never do this, darling,” my father tried to calm her down, not too convinced himself.
The ECB hailed this as a move to discourage terror finance and a step to fight financial crime: drug trafficking, tax evasion, weapons trade, corruption, money laundering...
The argument was that the purple euro bills, which few ever use in cash transactions, are the currency of choice for criminals. The abolition of “Bin Ladens”, as they are nicknamed, would therefore make life more difficult for evil-doers.
My parents were unconvinced. “I don’t think Al Capone or Pablo Escobar were greatly supported by the euro,” my mother smirked. “And as far as I know even bank robbers, a dying trade anyhow in a world of cybercrime, prefer small bills. They are much more difficult to trace.”
My mum felt her freedom was under attack. For her, the story started with the lifting of bank secrecy, the cap on cash withdrawals and when her bank stopped paying any interest on her savings. My father saw his chance: “Darling, savings have nothing to do with your idea about the end of cash.”
Interestingly, they do. The financial crisis has left us with a world of slow growth, crippled banks, underfunded pension pots, heavily indebted governments and interest rates below zero: to the tune of 13 trillion US dollars, and countries and corporations now borrow at a financial loss for their lenders, who are prepared to pay for the privilege of parting with their money.
Savings have become worthless. Oil exporting countries, and big exporters like China, Japan and Germany, but also corporations like Microsoft, Apple and Google, have amassed surpluses they cannot put to good use in times of slow economic growth, or, as in the case of Apple, would be taxed if they did.
Ageing populations in the developed world sit on a large pot of savings that are not or cannot be channelled into meaningful investments. The elderly saved a lot but consume little. Entrepreneurs have no incentive to borrow their savings.
It is difficult to understand why western governments at a time of free money are not willing to create demand by public investment, thereby boosting growth. We all would like better roads, better water, a better internet, better retirement care, better investment in science and research, as would our children and grandchildren. There is no sewer, no desalination plant, no solar park that would not earn at least marginally more than the one per cent interest the Spanish government pays for a 10-year credit, or the 0.05 per cent the German government would have to pay.
But governments, loaded with debt from their recent bank bail-outs, are hesitant. So the last hope for a rigorous demand push rests with the consumer. By pushing interest rates into negative territory, central banks hope to stimulate credit growth. If we all start spending money like there’s no tomorrow, instead of saving it, this would give the jolt the economy needs.
This is how my mum’s saving account and the €500 bill comes into play. Punished by zero interest rates, savers tend to save more, not less. They are getting poorer, after all, and have to account for it.
Europe’s banks, punished by the ECB with negative interest rates for their idle money, are for good reason hesitant to pass them on to their customers: my mum would be the first to queue in front of the cash counter to withdraw all her savings, and put the cash under the mattress. She might have even rented a safe deposit box at the bank.
Mum would not have been alone. We all would have dashed to get our cash out and it is quite clear that any bank, would have gone under in no time. But sooner or later the banks will have to choose between excessive risk taking in ever more dubious investments and passing on the costs. To do so they will have to make sure that we cannot get our hands on our money ever again.
The end of the €500 bill may really be just the beginning. The €200 and €100 bills may come next. To raise cash could be limited or may incur a hefty charge, to deposit cash, or to pay with it, could be equally discouraged.
And one day soon, money as we knew it for the last 2,500 years may not exist anymore. We will pay with credit cards, cell phones and smart watches, leaving a traceable picture of our spending habits and financial whereabouts, thereby sacrificing independence and freedom.
Future generations will be clueless about the significance of a piggy bank, the clanking till in Pink Floyd’s Dark Side of the Moon and the triangle tinkle in Richard Strauss’ opera The Love of Danae. There will be no coins for the beggar and no coins in the Trevi Fountain.
But maybe my dad is right. Cash will not be completely abolished. They will surely leave us with some small change…
Andreas Weitzer is a journalist based in Malta who writes for leading international publications.