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A new law in Israel will further reduce the limit on cash transactions for both personal and business payments, following in the footsteps of similar legislation in the EU.
Effective as of Monday (August 1), business payments of more than INS6,000 ($1,759) must be made using alternative methods, such as bank transfers, credit or debit cards. This includes salary and wage payments made to employees.
This new law reduces a previous cash payments limit to businesses of INS15,000 ($4,397) by 60 percent.
Similarly, the new law reduces the cap on cash payments by tourists from INS55,000 ($16,123) to INS40,000 ($11,726). For peer-to-peer transactions between citizens, the new law will limit cash payments to INS15,000, down from INS50,000 ($14,658).
Penalties for violating the new law will be applied in increments depending on the size of the transactions, ranging between 15 and 30 percent of the sum involved.
There are some notable exceptions to the new law, such as donations to charitable organisations and trade with Palestinians from the West Bank, who are not citizens of Israel.
In the West Bank, deals involving large amounts of cash will be allowed, but will require a signed declaration to be sent to the Israel Tax Authority.
Finally, restrictions on the use of cash will not apply between relatives, excluding cash payments for wages.
A trend in the making
The Reduction of Use of Cash Law, as the legislation is officially known, was first enacted in Israel in March 2018, and from the outset there were plans to gradually reduce the cash limit.
Lyn Alden, analyst and head of Lyn Alden Investment Strategy, said the trend towards further caps on cash is likely to continue, and is likely to spread to other countries in future.
She added that this will happen whether previous laws are updated with new limits on cash, or whether old limits are left untouched.
“Due to ongoing inflation, the thresholds naturally shrink over time,” she said. “If you just leave the cap in place for a long enough time as currency devalues over years and decades, it effectively keeps lowering the cap on what you can use physical cash for.”
Even so, there are cash industry professionals in Israel who believe the new law is “quite reasonable” in its limits and provisions.
Mussi Katz, CEO of Israeli ATM provider Casponet, told VIXIO that the two main groups who use cash in Israel are ultra-orthodox Jews and Arab-Israelis, both of whom enjoy certain exemptions under the new law.
“There are many people in those two groups who still don’t own a card, so I think this latest government measure will help to improve financial inclusion for them. It will also do the same for smaller businesses that currently prefer cash.
“I don’t think there will be any significant effect on the financial system,” he added. “I think cash will continue to be a major part of the payment landscape in Israel for the next ten years at least.”
The view from Europe
Reducing limits on cash payments has also been actively pursued in parts of Europe.
For example, one jurisdiction that has been proactive in reducing its cash payments limits, but also in ensuring cash acceptance, is Spain.
In July last year, Spain introduced a new Anti-Fraud Law that reduced the maximum cash payment that businesses could accept from €2,500 to €1,000. For non-business and non-domiciled persons, the limit was set at €10,000.
However, Spain followed up in May this year by passing a new payment choice law that makes it illegal for merchants to reject cash for in-person payments (within the limits prescribed above).
Spain’s new Anti-Fraud Law thereby makes it one of the most restrictive jurisdictions in the EU with regard to cash payment limits, alongside Portugal and France, both of which have a €1,000 limit.
Like Spain, France also has a law that makes it illegal for merchants to reject cash payments, as long as they are within the prescribed limit.
At a pan-European level, however, there is currently no EU law that mandates limits for cash payments.
In July last year, a proposal to limit cash transactions to €10,000 in all EU member states was put forward, and is still under consideration.
At present, based on Directive (EU) 2015/849, a merchant who accepts a cash payment of more than €10,000 must apply anti-money laundering (AML) and counter-terrorist financing (CTF) requirements to the transaction.
The proposal notes that this approach has been shown to be ineffective due to poor understanding and poor application of AML/CTF requirements among merchants, lack of supervision and a limited number of suspicious transactions reported to financial intelligence units (FIUs).
If the proposal becomes law, it will also require that, in three years' time, the European Commission assess the need for further reductions of the EU’s cash payments limit.
