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Sinn Opposed to Abolishing the 500 Euro Note

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Mar 31, 2016 Ifo President Hans-Werner Sinn has expressed his opposition to the abolition of the 500 euro notes, to an upper limit on cash payments and to negative interest rates. "The European Central Bank (ECB) wants to prevent banks from hoarding cash in order to force them to pay negative deposit rates. If they succeed, savers are also likely to pay penalty interest on their deposits”, he said in Munich on Thursday. “Doing away with the 500 euro banknotes will enable the ECB to increase the penalty interest rate from 0.4 percent to 0.75 percent, because it is more expensive for the banks to hoard cash in the form of 200 euro notes. If this leads to a corresponding decline in the whole interest rate spectrum, Germany, the second largest creditor in the world, would lose an additional eight billion euros in revenue annually.” The majority of German economists is also opposed to the abolition of the 500 euro note. This is the result of the most recent Economists Panel, a survey by the Ifo Institute in cooperation with the FAZ. In the survey, 54 percent of the participating 185 professors stated that cash payments should not be restricted. Only 44 percent supported a ceiling for cast transactions. The abolition of cash found the support of only 2 percent.

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Mar 31, 2016

Ifo President Hans-Werner Sinn has expressed his opposition to the abolition of the 500 euro notes, to an upper limit on cash payments and to negative interest rates. "The European Central Bank (ECB) wants to prevent banks from hoarding cash in order to force them to pay negative deposit rates. If they succeed, savers are also likely to pay penalty interest on their deposits”, he said in Munich on Thursday. “Doing away with the 500 euro banknotes will enable the ECB to increase the penalty interest rate from 0.4 percent to 0.75 percent, because it is more expensive for the banks to hoard cash in the form of 200 euro notes. If this leads to a corresponding decline in the whole interest rate spectrum, Germany, the second largest creditor in the world, would lose an additional eight billion euros in revenue annually.”

The majority of German economists is also opposed to the abolition of the 500 euro note. This is the result of the most recent Economists Panel, a survey by the Ifo Institute in cooperation with the FAZ. In the survey, 54 percent of the participating 185 professors stated that cash payments should not be restricted. Only 44 percent supported a ceiling for cast transactions. The abolition of cash found the support of only 2 percent.

Niklas Potrafke, head of the Ifo Center for Public Finance and Political Economy, sees a restriction of freedom in the foreground of this issue. “The abolition of cash would restrict citizens’ freedom of choice”, he remarked. In their comments, many professors expressed the suspicion that with restrictions on cash payments, the state would expand its control over law-abiding citizens. An abuse of power would be a real danger. The majority of professors expect real economic disadvantages from constraints on cash payments: 54 percent expect some or major economic disadvantages, 21 percent however see slight economic benefits and 2 percent even anticipate strong advantages.

Hans-Werner Sinn

Hans-Werner Sinn is President of the Ifo Institute, Professor for Economics and Public Finance at the Ludwig Maximilian University of Munich, Director of the Center for Economic Studies (CES) and Managing Director of CESifo GmbH. His main research interests are taxation, the environment, growth and exhaustible resources, risk theory, climate and energy, banking, demography and social security, macroeconomics and systemic competition. Sinn gained his doctorate in 1978 at the University of Mannheim and his habitation in 1983 from the same university.

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