The German government is in favor of keeping the money in cash

The German government is in favor of keeping the money in cash

The German Economy Minister, Brigitte Zypries, today expressed support for maintaining the use of cash, against those who propose its abolition, and referred to a report of the advisory council of his portfolio, made up of 25 economists

The report, presented today at the Ministry’s headquarters, also criticizes the policy of zero interest of the European Central Bank (ECB), a point on which, however, Zypries did not speak, following the tradition of not commenting on the policy of that institution .

“The cash must continue to be an important means of payment and has its justification also in times of digitization,” said the minister.

As he explained, the independent advisory council defends “with convincing economic arguments the maintenance of cash money” and is an important contribution to the current discussions.

The report was presented today by the president of the aforementioned advisory council, Hans Gersbach, and by another of its members, the director, Martin Hellwig, professor at the University of Bonn, who coordinated the preparation of the document.

The two topics of the report, the debate on cash and the zero interest monetary policy of the ECB, were chosen as a reaction to the current debate and to experiments that are being carried out in various parts of the world with the reduction of payment possibilities in metal.

“In all parts of the world, high-denomination notes have been reduced and proposals are currently circulating to radically restrict the use of cash,” Gersbach recalled before summarizing the central arguments of the advocates of the abolition of cash.

In the first place, they point, technological progress would be stimulated and costs would be reduced; In addition, it would facilitate the fight against the underground economy and illegal businesses and, finally, would make possible a monetary policy with negative interests.

The advisory board considers the three problematic arguments and the last effect is not seen by economists as desirable.

Central banks, according to the report, would not save costs by abolishing cash.

“The issue of cash, with the exception of one cent, brings benefits to the ECB,” Hellwig said.

Image result for german moneyThe increased use of electronic payment possibilities, according to the report, should be left in the hands of market players and an intervention would only be justified if there were serious distortions, while abolishing cash to fight the shadow economy is “disproportionate” “, the economists point out.

Hellwig also expressed the suspicion that the current debate has been driven precisely by economists who want to increase the possibilities of influence of central banks and make easier the introduction of negative interests.

From this, in the final part of their report, economists warn of the dangers of a zero interest policy.

The interests zero, or close to zero, explain the economists, radically reduces the possibilities of profit of the financial institutions, which is especially serious if one takes into account the crisis that the banking sector has gone through.

“With interests close to zero, the very foundations of the financial system are being questioned,” Hellwig said.

His analysis maintains that the longer the zero interest policy lasts, the greater its risks and the more difficult it will be to put an end to it.

According to Hellwig, some problems are already evident as the existence of a real estate bubble or the fact that many people, faced with the possibility of investing their money in the traditional financial market, are resorting to dubious high risk bets.