By Guillaume Lepecq, originally published on

On September 1st 2015, the French government lowered the cap on cash payments from €3,000 to €1,000. The new rule applies both to business-to-consumer and business-to-business transactions; consumer-to-consumer transactions are not affected. For non-residents, the limit is €15,000.

France is one of the first countries to have introduced restrictions on cash payments as early as 2001. However, particularly in the wake of the Global Financial Crisis, many countries have followed the French lead as illustrated by the table below. In Germany, a plan to introduce a limit on cash transactions has been met with fierce resistance across the country. The economic weekly magazine made this their cover story in February titled  “Save Cash”.

Restrictions on Cash Usage

Belgium € 3,000 1 January 2014
Bulgaria BGN 10,000 (€5,112) 1 July 2011
Czech Republic CZK 350,000 (€12,673) 1 January 2013
Denmark DKK 10,000 (€ 1,340) 1 July 2012
France € 1,000 Residents
€ 15,000 Non residents
1 January 2001 revised in 2015
Greece € 1,500 1 January 2012
Hungary HUF 1.5 million (€ 5,000) 1 January 2012
Israel € 3,500  for merchants
€ 12,000 for individuals
Italy € 1,000 6 December 2012
Portugal € 1,000 14 May 2012
Slovakia € 5,000 1 January 2012
Spain € 2,500 Residents
€ 15,000 Non residents
19 November 2012

Source:  The Irreplaceability of Cash and recent Limitations on its Use : Why Europe is off the Track, Edoardo Beretta, Università della Svizzera italiana. Updated by AGIS Consulting.

These measures are generally adopted in order to reduce tax evasion and the shadow economy. In the case of France, when the government lowered the cap from € 3,000 to € 1,000 in September 2015, it announced that the measure was aimed at reducing fraud, money laundering and the financing of terrorism. It goes without saying that these objectives are both legitimate and necessary. And there is no doubt that some tax fraud is perpetrated in cash, but does it justify limiting cash payments?

There is a debate on where to draw the line between the privacy and freedom of paying in cash and the security and traceability of digital payments.  But there are also questions regarding the efficiency of these measures.: are the rules followed? Do they contribute to reduce fraud? Are they detrimental to the economy?

Are the rules followed?
It seems pretty easy to work around the rules e.g. by the splitting the transaction if it exceeds the threshold. Of course, that is easier for a restaurant bill than for a car. Alternatively, bring a foreign friend to foot the bill. Indeed, several countries (including France or Spain) impose different limits for residents and non-residents: € 2,500 in Spain for residents and €15,000 for non-residents. According to Edoardo Beretta[1] «In fact, there is no plausible economic reason to justify this decision, which explicitly discriminates French residents who are, after all, the main fiscal contributors to the French State budget.» It also poses the challenge for the merchant of identifying a non-fiscal resident: are they supposed to check their tax declarations?

Do they contribute to reduce fraud?
Until now, no evaluation of the efficiency of cash limitations has been undertaken.  However, there does not appear to be any correlation between the size of the shadow economy and the adoption of restrictions as illustrated by the table below. Austria, which has the smallest shadow economy in Europe imposes no restriction, whereas Bulgairia which has the largest has set a cap of just over € 5,000. Mordechai Fein[2], former head of the Currency Department at the Bank of Israel, points out that «One indication that essential economic or social aspects were not accounted for is the wide discrepancy of cash restriction ceilings among countries.» In particular, one could expect that restrictions on cash payments would only shift tax evasion towards other, more sophisticated methods.

Size of shadow economy in % of GDP
Countries bold have imposed caps in cash payments

Austria 8.2 Latvia 23.6
Belgium 16.2 Lithuania 25.8
Bulgaria 30.6 Luxembourg 8.3
Croatia 27.7 Malta 24.3
Cyprus 24.8 The Netherlands 9.0
Denmark 12.0 Poland 23.3
Czech Republic 15.1 Portugal 17.6
Estonia 26.2 Romania 28.0
Finland 12.4 Slovenia 23.3
France 12.3 Spain 24.8
Germany 12.2 Slovakia 18.2
Greece 22.4 Sweden 13.2
Hungary 21.9 United Kingdom 9.4
Ireland 11.3 EU average 18.3
Italy 20.6

Source: Size and Development of the Shadow Economy of 21 European and 5 other OECD Countries from 2003 to 2015: Different Developments, Friedrich Schneider, Johannes Kepler University, Austria

Are they detrimental to the economy?
In other terms, do cash restrictions prevent legitimate transactions? On the one hand, there is no perfect substitute for cash. In a face-to-face environment, the credit or debit card is the most widely used non-cash payment instrument; however, not everyone carries a card. But even for those who do, there are also limitations on the value of payments, which are typically in the area of a few thousand euros. Not to mention that card transactions for the merchants but also for the user in the case of international transactions.  As for account-based payments, they do not offer real-time settlement, which is a challenge in case you are purchasing an item in a store.

On the other hand, there are also transactions where consumers wish to protect their privacy or protect themselves from payment fraud. Reuters reported that in Italy, jewellery sales fell by up to 30% the last four months of 2011, following the introduction of the € 1,000 cap. Many foreign buyers refuse to use payment cards and prefer to go shopping elsewhere.

These measures also create a perception of suspicion, for cash transactions and cash users in general, even if the transaction is within the authorised limit.

In conclusion, it appears that there is little or no evidence that restricting cash payments contributes to curb tax evasion or money laundering. And these measures could also have a negative impact on consumption. There is a need to evaluate the efficiency of these policies.

[1] The Irreplaceability of Cash and recent Limitations on its Use : Why Europe is off the Track, Edoardo Beretta, Università della Svizzera italiana

[2] Cash : Down but Not Out, Mordechai Fein

Three questions about cash restrictions