L'Ombre de l'Olivier

The Shadow of the Olive Tree

being the maunderings of an Englishman on the Côte d'Azur

26 June 2007 Blog Home : June 2007 : Permalink

The Popularity of Euro Notes

The FT had an article yesterday on an ECB report about how Euro notes are very popular inside the Eurozone, much more so than, US dollars in America for example. It comes up with a couple of reasons:

One explanation for Europe’s cash addiction could be that the use of payment cards is less developed in many eurozone states than in the US. The ECB believes low inflation and interest rates have increased the attraction of holding cash, while euros are available in higher-denomination notes than dollars. Demand for €500 notes has shown a particular increase. Since 2002, a “re-optimisation” of currency holdings has “led to a considerable increase in the importance of banknotes as a store of value and as a means of payment for large-value transactions”, says the ECB.

Excluding notes held abroad, per capita holdings in the US were worth the equivalent of about €870. For the eurozone, the figure was more than €1,600.

Oddly enough the newspaper and the report don't mention a couple of reasons that I can think of why cash is so popular. Taxation and welfare. If you pay another individual or small business in cash you may avoid paying VAT and the recipient may avoid paying a number of other taxes such as income tax and social security. Indeed the recipient may officially be receiving welfare that he would be ineligable for if the money he received for workign in the black economy were declared. Note the recent admission that the British middle classes are cheating scumbags and my post about scofflaws some time ago.

On the whole in the US taxation is far less punitive and welfare less generous so the incentive to cheat the goverment by paying cash is far lower.