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Despite the rapid growth in take-up of digital payments, euro banknotes will continue to be relevant for a very long time because there is no viable alternative, says the European Central Bank (ECB).
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In a recent speech, ECB executive board member Yves Mersch said that despite Eurozone countries consulting the ECB on how to reduce the use of cash in society, the euro banknote will retain its important role.
The ability to make small, quick payments to people and businesses such as retailers through contactless technology is reducing the need for cash. For example, in the UK a recent Visa survey showed that 59% of the millennial generation have made a peer-to-peer payment to someone on their phone.
There has been an explosion in the use of contactless card and phone payments for low-cost items. Mersch said that last year, Cyprus, Bulgaria, Belgium, Portugal and Denmark had all approached the ECB to discuss reducing cash.
But cash is by no means dead, he said. “Printed euro banknotes will retain their place and their role in society as legal tender for a very long time to come,” said Mersch. “There is no viable alternative to euro cash. There is good reason to believe that banknotes don’t only have to take the form of printed paper, cotton or polymer.
“However, printed banknotes will remain our core business. And if there is public demand for digital central bank money, this should only be a technical variant of cash.”
“Alternative payment methods cannot replace euro cash – they can only complement it. The euro system must therefore continue to ensure the existence of euro cash. This is the only way we can safeguard the role that euro banknotes and coins play in protecting the fundamental rights and freedoms of the people of Europe.”
Mersch said cash enables users to protect their freedom because they can spend without their transactions being tracked by businesses or the government. “Protection of privacy matters to all of us,” he added. “Privacy protects people from the risk of a surveillance state and thought police.”
Cash is regularly linked to crime by groups promoting digital payments, said Mersch, but they ignore how cyber criminals use alternative means of payment, such as bitcoin. “It is astonishing that these are subject to much less criticism than cash despite the risks they entail and the scope for misuse,” he said.
Cash as legal tender allows equality and participation, said Mersch. “The easy accessibility to cash, especially for the elderly, the socially vulnerable or minors, allows people to participate in society and, for example, allows children to learn how to handle money. In particular, when socially vulnerable people use cash, they face none of the barriers involved in applying for a credit card or opening a current account.”
A recent study by the Federal Reserve Bank of San Francisco found that the use of cash is actually continuing to rise in all the world’s economies apart from Norway and Sweden. The study looked at 42 economies, which account for 75% of global GDP.
Apart from Norway and Sweden, where the amount of currency in circulation (used as a measure of cash) has declined, in the other 40 economies it has either matched GDP growth or exceeded it.