In Italy cash is king and I mean real physical paper money and metal coins. This is not just my observation – European statistics show that cash is more important only in Romania and Greece.
Even in market squares payment cards are often accepted but customers prefer cash.
The reason for Italians preferring cash can’t be the lack of payment cards or needed infrastructure. In fact, according to the Bank of Italy, Italians have 1.5 cards per capita and there are 30.400 payment terminals per million inhabitants. The statistics on terminals is better than in France, Germany, and the U.K.
Yes, there are some transaction costs for the merchant in card payments, but those aren’t too high. Besides, merchants have costs for handling cash as well. For the customer there’s usually no extra charge when you pay with a card.
Despite a good infrastructure and negligible costs, card transactions accounted only for €155 billion of the total spending of €600 billion in Italy. Statistics also indicate that in 2014 there were only 38.2 card transactions per person in Italy, compared to an average of 97.7 card transactions per person in the EU.
So clearly there’s some sort of aversion to card usage here in Italy. What the reason could be is still a mystery to me. I don’t quite buy the explanation by Corriere della Sera, which is that "pulling out a card is regarded as a hostile act”. I’ve noticed however that this general attitude of preferring cash has already started to affect me. I rarely pay for smaller purchases in a bar or in small shop with a card – even though the place would accept card payments.
My prediction is that Italy will be among the last societies where paper cash and coins disappear. Furthermore, going cashless will probably require active measures by the government and the banks. Some actions have already been taken. Cash transactions over €1.000 were made illegal already in 2011 by Mario Monti’s government in an effort to combat tax evasion.
Could cash be completely banned in Italy and in the EU? It's unlikely but not entirely impossible. Recently ECB President Mario Draghi called for a ban on the 500 euro banknote and a few days later former U.S. Treasury Secretary Lawrence Summers wrote that the 100 dollar banknote should be abolished.
The official reason governments and banks would like to scrap high-denomination banknotes is that it would make life harder for criminals and terrorists. In my opinion this is a doubtful reason, because there are so many easier and more sophisticated methods for criminals to make money transfers. Bitcoin is just one obvious example.
Obviously there’s a palpable fear of a potential bank run on the banking system. If negative negative interest rates are imposed on normal household bank accounts, no sane person would keep money in the bank. My prediction is that if central banks don’t change course soon, this is exactly what will happen.
Banks like JP Morgan are already imposing negative rates on larger depositors. Why wouldn’t they try to do it for smaller clients as well? After all, banks are not in the business of charity. Banning high-denomination notes would, at least to some extent, make it harder to pull out larger savings into physical cash.
Let’s just hope central banks realize that negative interest rates are a huge mistake and change course while it’s still possible. The fact that pension savers in Japan are currently hoarding 10.000 yen bills and Japanese safe makers are doubling their sales should be a serious warning signal.
To be honest, I don’t believe cash will be banned in the Eurozone anytime soon. It would cause too much trouble and resistance in several economies, not just in Italy. Europe is still not ready to go all-in on electronic payments.
Those who consider pulling out a card from the wallet a hostile act can for now breathe a sigh of relief.