I outline my submission made to the Senate Inquiry, which is open until next Friday 15th November 2019.

https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/CurrencyCashBill2019

Here is the full text of my submission.

Currency (Restrictions on the Use of Cash) Bill 2019

I have carefully reviewed the latest iteration of this legislation and am gratified that the Senate has chosen to review the proposals, which I strongly oppose.

Not only is the bill significantly eroding our civil liberties, but the conduct of Treasury needs to be called out by suggesting that 3,400 of the 3,500 submission they received during their brief 2 week exposure review submission period were part of a campaign “by the CEC, a political party”. While there was indeed a campaign to oppose the draft legislation, I have evidence that submissions were made by many concerned individuals and businesses with no links to the CEC. Indeed, my own submission, some of the contents I am using here again, is based on my own independent research and analysis.  I have no financial or political association with said CEC. I believe Treasury tried to play down the considerable opposition which exists within the community. This bill is, in my view toxic.

Digital Finance Analytics is a boutique research and analysis firm specialising in the financial service sector. We undertake primary research through our surveys, as well as deep research from the global literature relating to financial services. We publish regularly via our online channels at Digital Finance Analytics[1] as well as preparing reports on a range of related subject matters for our clients, and we collaborate with a number of academics.

My objections are centred around the following points.

• Civil Liberties Are Being Eroded. Further public debate on these measures are warranted as they are fundamentally restricting personal freedoms. Today I can use and hold cash as I please. If passed, my freedom will be eroded. This is one in a series of measures which have been taken (including media freedoms) which are curtailing the hard-won freedoms Australians used to enjoy.  Public hearings should be held by the Senate to judge community reactions to the bill as part of the current review.

• There Is No Cost Benefit. The stated objective of the bill is to close tax avoidance and money laundering loopholes. But there is no quantification of the potential “savings” – and this is also true of the earlier Black Economy Taskforce report. It appears that simply stating these desired objectives is seen as sufficient to justify the bill. What is the cost benefit of such a measure, bearing in mind that transactions which fall outside the exemptions would need to be tracked and examined? 

• Increased Surveillance Will Be Required. In some form, monitoring of offending transactions would be required if the Bill were passed.  This is not explained, nor how it would be policed. Who would police them, at what cost?  Further, the bill proposed a draconian set of penalties designed to deter. Treasury admitted this in their FOI’d response.

• Existing Laws Are Not Enforced. The true size of the black economy is much in dispute, but indications are that it is already falling. In addition, much of the tax leakage and avoidance would be covered by existing legalisation if it were being policed effectively. We support the view, recently aired by Andrew Wilkie in the debate on the floor of the house, that:

“There’s already a requirement to report transactions over $10,000. The problem is that those laws are not being implemented and enforced[2].”

• There are other more pressing areas of tax leakage and AML risk. According to the OECD report “Implementing The OECD Anti-Bribery Convention” released as part of the OECD Working Group on Bribery, Real Estate is identified as at “significant risk” of being used for money laundering. Among a raft of recommendations, is one saying Australia should be “Taking urgent steps to address the risk that the proceeds of foreign bribery could be laundered through the Australian real estate sector. These should include specific measures to ensure that, in line with the FATF standards, the Australian financial system is not the sole gatekeeper for such transactions”.  To date these loopholes, remain open, as do those relating the corporates and big business who, partly thanks to the assistance of the large international accounting firms are responsible for the lions share of tax leakage and AML activity. Our research suggests that Government, under heavy corporate and business lobbying is deliberately letting this slide, preferring to target in on a relatively inconsequential area of tax leakage relating to cash transactions.

• The Legislation Would Be Ineffective. Beyond that, it is clear from our wider research of a range of sources that such a proposed cash ban would have very little impact on hard core tax leakage. For example, Professor Fredrich Schneider, a research fellow at the Institute of Labor Economics at the University of Linz, Austria, a leading international expert on the black economy has stated that there is a lack of empirical evidence that cash transaction bans will help reduce the black economy. Schneider published a paper in 2017[3]  “Restricting or Abolishing Cash: An Effective Instrument for Fighting the Shadow Economy, Crime and Terrorism” in which he made this specific point.

• There Is Another Agenda. In addition, while the Bill is silent on the connection to implementing negative interest rates as part of unconventional policy, the link was made clearly in the 2016 Geneva Report by the International Centre Monetary and Banking Studies (ICBM) titled: What else can Central Banks do?[4]  This paper which was drafted by officials from international organisations such as the IMF/BIS and multiple central banks + commercial banks. In addition, within the original Black Economy Taskforce Report there was mention of the benefits of a cash transaction ban in relationship to monetary policy – yet this link was denied by Treasury in their recent FOI release.

• The IMF Shows Why. The same thematic came through in recent IMF Blogs and working papers.  In April 2019, the IMF published a new working paper on how deeply negative interest rates work. In previous papers, the IMF has suggested that nominal interest rates may have to go deeply negative, for example, -3% – 4%.   First, they say “In summary, ten years after the crisis, it is clear that the zero-lower bound on interest rates has proved to be a serious obstacle for monetary policy. However, the zero lower bound is not a law of nature; it is a policy choice. We show that with readily available tools a central bank can enable deep negative rates whenever needed—thus maintaining the power of monetary policy in the future.” Next they declare “Our view is that, when needed, deep negative rates are likely to be worth the political cost. While the complete abolition of paper currency would indeed clear the way for deep negative interest rates whenever deep negative rates were called for, such proposals remain difficult to implement since they involve a drastic change in the way people transact.”

• The Bill Is Connected to Negative Interest Rates. The connection is obvious in that in a negative interest rate environment households and businesses will be likely to withdraw funds from the banking system and transact in cash. If enough cash is extracted, negative interest rates will simply have no effect. We believe the measures proposed in the current Bill are truly about enabling negative rates, yet this is not mentioned within the Bill. This is misleading and deceptive. The true motivations should be on the record. But it explains the short time frames.

• Households and Businesses Would Be Trapped In The Banking System. If such a ban was introduced households and businesses would be forced to use the banking system, meaning that bank charges could not be avoided, which benefits banks, not their customers. In addition, we have seen recent system and power failures which have caused disruption to the electronic payments systems. If cash is less available and restricted, a failure would be even more significant and inconvenient and could damage the economy. Once in the banking system, funds can be monitored and controlled (seen by the Taskforce as a positive move – we disagree), but such control could limit access to cash and transactions in general in a crisis. And we note from our SME surveys that many businesses, especially in rural and regional Australia regularly use cash as electronic alternatives are not available. Finally, offering cash for a discount, which is part of legitimate everyday business (because bank charges are avoided) would be removed.

• The Structure Allows Change by Regulation Subsequently. The structure of the Bill enables parameters to be changed subsequently by regulation (not via Parliament). This opens the door to removing some of the concessions contained in the current drafting by agencies without full scrutiny. The bill is therefore open ended with regards to crypto, precious metals and other carveouts. In addition, we note surprisingly, government transactions, and cash transactions in Casinos are carved out, which again flags concerns about the structure and limitations of the bill.

• A Reduced Limit Could Be Waived Through.  Whilst we note that the $10,000 limit would require Parliamentary approval, in practice this could be made without full debate – as illustrated by the passage on the recent APRA bill, or as part of an omnibus “procedural” bill which masks the true intent. It is important to note that where cash transaction bans have been introduced, the value ceiling has been lowered.  France has legally prohibited cash transactions above 1,000 euros, Spain has legally prohibited cash transactions above 2,500 euros, Italy has legally prohibited cash transactions above 3,000 euros, and the European Central Bank ended the production and issuance of its 500 euro note at the end of 2018.

In summary, my overriding concern is that Parliamentarians will only consider the narrow tax efficiency aspect of the Bill and vote it through without grasping the true intent and consequences. Civil liberties are being eroded, and the trap will be set to force households and businesses to transact within the banking system, thus facilitating experimental monetary policies, via the back door.

This Bill should not be allowed to pass.

[1] https://www.digitalfinanceanalytics.com/

[2] ABC News

[3] https://www.econstor.eu/handle/10419/162914

[4] https://voxeu.org/article/what-else-can-central-banks-do