[co-author: Boris Urquizu Barquet]

The recent initiative of the Spanish Socialist Parliamentary Group to phase out cash payment with the horizon of its complete disappearance has opened an intense debate in Spain. Is the disappearance of cash possible? Is cash being replaced by electronic payment methods? Has the COVID-19 crisis had any impact on the decrease in the cash usage? These are some of the most frequent questions that appear in the media and which are answered in this note.

"Cash payment phased out, with the horizon of its definitive disappearance". This is one of the eleven measures that the Spanish Socialist Parliamentary Group has proposed for debate in the Plenary of the Spanish Congress of Deputies, in its Non-Law Proposal on the orientation of the tax system in light of the crisis caused by the COVID-19.

If we add to this Non-Law Proposal the failed initiative presented at the end of 2018 to lower the current limit of cash payments from EUR 2,500 to EUR 1,000, the Government party makes clear that they have declared war on cash.

The main reason for these measures is, as they have been stated, the fight against tax fraud. The aim is to end the black economy in Spain which, according to the majority of studies, represents between 19% and 24% of the Spanish GDP.

Another reason that has strengthened the Government's intentions is the uncertainty that has been generated by the appearance of COVID-19 and its possible transmission through cash. To the extent that organizations such as the World Health Organization have recommended card payment to avoid contact through coins and notes and even some Autonomous Communities such as the Community of Madrid have prohibited cash payment on their bus lines. And the truth is that, although many scientists and even the European Central Bank have called for calm by saying that the notes do not represent a significant risk of infection compared to other surfaces, the demand for cash has fallen considerably in recent months.

This decrease in strict cash payments has been inevitably accompanied by an increase in card payments and instant payment apps such as Bizum. In fact, the Spanish banking authorities have decided to increase the minimum payment limit by card from EUR 20 to EUR 50 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 been manifesting itself with great intensity over the last five years. To give you an idea, in 2019 there was an increase of 16.2% in the number of card transactions compared to the previous year, which also meant an increase of 9.44% 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 in which the Bank of Spain began to collect these data) we find a 357.5% increase in the number of transactions (from 991M to 4,536M transactions) and a 244.5% increase in the total value of these transactions (from EUR 46,828.8M to EUR 161,343M). In parallel with this reality, we find that this last year almost a thousand bank branches have been closed, reaching 50,500, which is 11,000 less than in 2008.

Notwithstanding all the above, it does not seem that cash will disappear in the short to mid-term, as this would violate the provisions of the Treaty on the Functioning of the European Union, which states that notes and coins have the status of legal tender, as well as the criteria of the European Commission, which states that "the acceptance of euro notes and coins shall be the rule for payment in retail transactions". In 2019, the ECB also spoke out against the reduction in the cash payment limit from EUR 2,500 to EUR 1,000 proposed by the Spanish Socialist Group.

In conclusion, we are undoubtedly facing a very favorable environment for an increasingly strong expansion of electronic payment systems. 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.

[View source.]