The war on cash is also a war on freedom

Author: Nikolay Filibev

Earlier this week, the parliament adopted in first reading another proposal by the Ministry of Finance to tighten the restriction on cash payments. Bulgaria is one of the few countries in the EU with such a restriction. Even some of the most developed economies in the EU are without any limit on cash payments (Germany and Austria). In the first, attempts to introduce a minimum were met with strong opposition, both from a wide range of parties and from major media outlets. The main reason for introducing this regulation is the fight against the shadow economy, or at least that is what politicians claim. But is it really so?

Cash - the weapon of freedom

The war on cash is causing serious concern among the public. What the government is trying to do once again is to reduce the ceiling on cash payments from 10,000 leva to 5,000 leva. After being rejected three times as a separate bill, this proposal is being reintroduced, this time as part of a larger bill. This can only mean that the government is determined to push through this regulation at all costs.

This raises doubts as to whether there is lobbying by the banking sector aimed at providing fresh liquidity to banks, or yet another pyramid scheme on a huge scale. To begin with, there should not be a debate about a certain amount for a ceiling on cash payments, but the complete abolition of such a restriction. Cash is a wonderful means of payment, mainly because it allows anonymity. This is highly appreciated by many people who understandably do not want to leave traces behind. And no, I am not talking about those who are beyond the law. Every citizen has the right to keep the details of the payment they make anonymously. The fact that some people are beyond the law under this paragraph is a symptom of a bad system, not a contagion.

The age of digitalization

Technologies are developing rapidly, and bureaucrats are not far behind them. Politicians, as democratically elected and being “more understanding than any other person in their country”, are trying in every way to plan what, how and what is better for a person than what he himself can determine. In this way, domestic politicians are also trying to impose a better means of payment, namely through banks.

Of course, they do not bear much of the consequences of their proposals. Whether cash payments will cease to exist is something that will be decided over time by the market, which means - by each of us. It is possible that in the future the use of cash will cease to exist through a natural process. But in no case should this be forced.

The dark side of the economy

The argument for lowering the cash payment ceiling is based on the potential reduction of the shadow economy, as well as increased transparency for tax revenues. However, this is simply not true. All major studies indicate that the level of corruption is the most determining factor in its overall size. As we have mentioned before, a major study by the IMF (International Monetary Fund) indicates that the growth of shadow economies is a result of increased tax and social security burdens combined with tightened regulations.

This supports the claim that the shadow economy is partly an immune reaction to excessive regulatory, tax and social security burdens. Also, lowering the threshold for cash payments will harm small and medium-sized businesses. This additional burden, in the form of artificially increased financial and administrative costs, can lead to inflated final prices, pushing some previously completely legal and consistent businesses into the shadow economy, and in some cases even to bankruptcy. This will worsen tax collection and, instead of reducing the shadow economy, this regulation will increase it.

Customers are dear to us.

The inevitable winners from this regulation are the banks. The forced use of banking services is an artificial subsidy for the banking sector. This in turn raises doubts about strong lobbying influences. Given the fact that the main argument for this regulation - the fight against the shadow economy - does not stand up to more serious analysis, it follows that the aim is precisely to benefit the banking system. Whether due to an urgent need for liquidity, a preventive one for a potential looming crisis, or another pyramid scheme for robbery - people can only lose from this regulation.

Artificial subsidization of banks can also lead to destabilization of the sector. Such an artificial influx of liquidity can lead to the formation of a bubble. One that is a consequence of the lowering of lending rates caused by higher liquidity. Thus, companies that would not invest under normal conditions would embark on riskier investment projects. Thus, in the long run, the economy can be brought to a crisis when this bubble bursts.

Conclusion

Attempts by politicians to artificially shift the payment method would have serious negative consequences. The weak argumentation, the level of corruption in our country and the way in which such measures are quietly being pushed through make the measure highly questionable. It should be clear that such regulation is detrimental to citizens because it infringes on their financial freedom. The shadow economy is fought not through more regulations and larger budgets, but by reducing the tax and social security burden and effectively combating corruption, accompanied by specific reforms.

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