Spain Limits Cash Payments; Should Startups Turn to Bitcoin?

Posted in: Archive
December 6, 2016 2:22 PM UTC

On January 1, 2017, a newly proposed regulation to limit the circulation of cash will be activated in Spain. The proposal will effectively limit all cash payments to 1,000 euros, in a nationwide attempt to fight against money laundering and fraud.

By nature, cash is anonymous. Such characteristic of cash has allowed it to develop into the preferred store of value for criminals and illicit traders. Thus, governments like the Spanish authorities are hoping to put an end to cash and attempt to replace current monetary systems with a digital network that is easier to manipulate.

Currently, governments and authorities have a totalitarian control over money which allows governments like the Indian and Spanish authorities to announce demonetization of certain bank notes or establish a limit on cash payments based on their judgment.

Spain, like India, is putting curbing cash.

On November 30, the Spanish government officially announced the formation of the cash limit proposal with the same mindset of the Indian government; to crackdown on criminals and disallow illicit flow of funds. However, somewhat ironically, it is the general population or the 99% of people that are negatively affected by these proposals.

For instance, the announcement of the Indian Prime Minister Narendra Modi to demonetize widely used 500 and 1,000 bank notes caused great inconvenience to the working class workers and employers in India, causing economic shock and chaos amid paydays. The demonetization of 500 banknotes also have caused great discomfort for the majority of the Indian population, hugely affecting daily expenditures and spending.

The Spanish government is heading towards a similar direction as India and other countries like Australia by restricting the usage of cash. Small payments going above the 1,000 euro margin will have to be settled via banking systems or existing financial networks like PayPal, which can be increasingly expensive due to transaction fees.

Ultimately, for small startups or even for households, the 1,000 euro limit on cash will disallow various important payments and transactions over the foreseeable future. Startups, which operate on a tight accounting system and small budget, will struggle to deal with the limit of cash. If every payment over 1,000 euros are forced to be settled through bank accounts and online financial systems, companies will have to deal with increasing fees on a daily basis that will highly likely affect day-to-day operations.

More importantly, it is difficult to speculate the next movements and initiative of the authorities in regards to cash regulations and money transmission policies. If the Spanish government were to abandon cash completely, it does have the authority to disallow any cash payments.

Bitcoin as a Safe Haven Asset

At this time of global economic and financial instability in which government financial initiative are completely unpredictable, reliance on safe haven assets like gold and bitcoin should be prioritized. Households must turn towards these safe haven assets rather than cash or banking systems. Startups must definitely select a store of value that is outside of the control of the government to ensure that they will still be able to make crucial payments even amid the implementation of strict financial regulations on money transmission.

Simon Black, an international investor, entrepreneur and founder of Sovereign Man wrote that these initiatives of the government are also unjustified, as countries with higher denominations of cash have had lower crime rates and money laundering cases.

“It turns out that countries with higher denominations of cash actually have much lower crime rates, including rates of organized crime,” said Black. “The research was simple; we looked at the World Economic Forum’s competitive rankings that assesses countries’ levels of organized crime, as well as the direct business costs of dealing with crime and violence. Switzerland, with its 1,000 Swiss franc note (roughly $1,000 USD) has among the lowest levels of organized crime in the world according to the WEF. Ditto for Singapore, which has a 1,000 Singapore dollar note (about $700 USD). Japan’s highest denomination of currency is 10,000 yen, worth $88 today. Yet Japan also has extremely low crime rates. Same for the United Arab Emirates, whose highest denomination is the 1,000 dirham ($272),” he added.

Considering the misled initiatives on cash limitations, startups, households, corporations and investors must become more aware of the fact that harsh regulations on money flow ultimately affects the general population rather than the actual 1% of criminals being targeted. The importance of gold, bitcoin or other safe haven assets also should be realized for this reason.

Images from Shutterstock.

Last modified: May 21, 2020 10:11 AM UTC

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Joseph Young @iamjosephyoung

Financial analyst based in Seoul, South Korea. Contributing regularly to CCN and Forbes. I have covered the stock market and bitcoin since 2013.