Bank of Italy warns of risks of easing curbs on cash payments

By Giuseppe Fonte

ROME (Reuters) – Reducing regulatory curbs on the use of cash will fuel Italy’s black economy and make it harder to crack down on tax evasion, a top central bank official said on Monday.

Prime Minister Giorgia Meloni’s right-wing government in its 2023 budget has proposed scrapping fines for retailers who refuse to accept cards for payments under 60 euros ($63.20), in a move seen as going against the spirit of commitments taken with the EU.

Rome also plans to raise a limit on cash payments to 5,000 euros from a previous limit of 1,000 euros from next year.

“Higher thresholds favour the black economy,” the central bank’s head of economics research Fabrizio Balassone told parliament.

“Limitations to cash use pose a hurdle to several forms of crime and (tax) evasion.”

His unusually critical remarks upset some politicians in the ruling coalition.

Francesco Filini, a deputy from Meloni’s Brothers of Italy’s party, said: “it is quite obvious that the central bank, an entity owned by the banks themselves, supports electronic payments,” adding that such payments generate revenue for banks.

The Bank of Italy, whose independence is safeguarded by European treaties, is more than 60% owned by domestic banks and insurers.

Balassone added that the two measures risked “clashing with the drive to modernise the country” through Italy’s post-Covid national Recovery and Resilience Plan.

Cash or card?

One of the so-called policy “targets and milestones” in the Italian plan agreed with Brussels in return for around 200 billion euros of EU funds was the introduction of sanctions for retailers who refuse to take card payments.

Those fines, which amount to 30 euros plus 4% of the value of the transaction, were one of the conditions for the 21 billion euro tranche of the Recovery Fund money that Rome secured in the first half of this year.

However, Meloni said on Sunday she might water down plans to make it easier to settle small payments with cash rather than cards, following talks with the European Commission over the issue.

Supporters of cash payments say they save shopkeepers expensive banking fees, but Balassone argued that the cost of dealing with cash as a percentage of a transaction is higher than that of debit and credit cards, citing central bank estimates from 2016.

Around 100 billion euros of tax are evaded every year in Italy, according to Treasury data.

Balassone said that in 2019 the number of annual electronic transactions per capita in Italy stood at around 130, which was considerably lower than the average of almost 300 for the euro area.

(This story has been corrected to fix the figure for fines in paragraph 11.)

($1 = 0.9499 euros)

(Additional reporting by Valentina Za; Editing by Federico Maccioni and Keith Weir)