[Dave Birch] In a recent edition of European Card Review, Malte Krueger of Paysys wrote that the cashless society would remain a fairy tale. Maybe. But as the article itself notes, that's not because cash is more efficient but rather because the law ensures unfair competition. Legal tender laws do not force people to use cash, as is sometimes claimed, but there are some laws that do discriminate in favour of it. In Germany, for example, banks are simply not allowed to charge private customers for withdrawing cash. Similar laws would undoubtedly be enacted in other countries so banks try to recover any costs on this side.
It's crazy to carry on using cash. The high social costs, the market-distorting cross-subsidies and sheer inconvenience mean that it ought to be vanishing, even though it's actually gaining market in share in the U.K. I found some figures from the Bank of Portugal in an earlier European Card Review earlier in the year. Portugal has the highest ATM penetration in Europe, which is one of the reasons why cash is very expensive there, as these figures show. The only payment instruments that pay their own way in that market are direct debits and credit cards. All other payment instruments lose money and cash costs about 25 times as much as it brings in. In other words, there is a massive cross-subsidy to cash from other parts of the banking business, which loses about €1.77 every time someone deposits cash in a bank branch (or withdraws it). No wonder it seems inexpensive to the retailers, who bear none of this cost. The big picture is that payments cost 0.77% of Portugal's GDP (against the 0.5% average for Europe as a whole) and revenues only bring in about two-thirds of the costs. Isn't there an old saying about holes and digging? When is cash going to be priced correctly?
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