The
The value of notes and coins in circulation as at last December
amounted to slightly more than Lm520 million. On average, each one of us, from
babies to centenarians, carries Lm1,300 in our wallets
or under the mattress, forfeiting the opportunity to earn interest thereon.
Obviously, the average is deceptive, as most people would hold no more than a few notes and a handful of coins for truly transactional purposes. Others, however, must be holding some relatively large amounts in the form of cash for whatever reason they consider it appropriate to do so, but certainly not for genuine small cash transaction requirements. The fact that 88 per cent of the value is composed of Lm20 and Lm10 notes emphasises this point.
If, as proposed, we join the euro on1 January
2008 , this cash will have to be converted into new euro notes in the
space of the first few months of 2008.
This must be a great and unique opportunity to straighten out a few things that have gone wrong over the many long years since we acquired our own currency. So it is amazing that while preparations have been made on all fronts for the euro conversion, including the putting of religion’s face on our euro coins – going against the Gospel’s own admonishment against mixing Caesar with God – no serious thinking seems to be going on to see how to make the most of this unique opportunity.
There must be a reason why people would prefer to hold cash in excess of normal transaction requirements and in the process paying the price in the form of forfeited interest. And this reason must have something to do with the objective of keeping such cash holding unregistered and anonymous.
People are prepared to forego not less than Lm10 million in interest each year purely to preserve, in anonymous form, their ownership of such financial assets, the real value of which is eroding each year through inflation. Basically, this means that they value their anonymity more than the interest and real value they are forfeiting.
It is therefore quite reasonable to consider whether the need to preserve anonymity over a cash holding has anything to do with a greater need to avoid being exposed as being on the wrong side of the law. However, one needs to make a clear distinction between those who need to preserve anonymity due to an infringement of criminal law and those whose motivation has more to do with the evasion of fiscal law. While all infringements of the law are serious, criminal infringements are much more serious than fiscal ones.
The conversion of such a massive cash holding in such a short time presents a once-in-a-life-time opportunity to bring offenders within the net of the law by a mixture of incentives and punitive measures.
Firstly, we need to make it extremely difficult, nay impossible, for criminal offenders to exchange their ill-gotten cash into new crisp euros. It is therefore important that administrative steps be taken as of now to make all conversions of cash subject to strict identification and registration.
People need to be reminded that anybody fronting for the true beneficial owners of such cash hoards are themselves guilty of participation in criminal activities and could expose themselves to severe fines and even imprisonment. Anyone exchanging Maltese liri cash into euro cash should be made to sign a declaration that he/she is the true beneficial owner of such cash or make a full disclosure of the beneficial owner’s identity.
Before exchanging cash, banks would have to conduct strict due diligence “know-your-client” procedures, which have to be sufficiently rigorous to deter criminals from attempting to exchange cash for euros through the official system.
Secondly, the authorities need to put together some form of fiscal amnesty, similar to the various foreign investment registration schemes of recent years, for those who are holding cash for fiscal reasons, giving them an opportunity to come clean against payment of reasonable penalties.
From a macro-economic point of view, measures have to be taken to avoid having a large amount of cash, that has been lying idle for such so many years, suddenly entering the normal economy, swamping it with additional excessive liquidity, and risking further asset price explosions in addition to what we have already experienced in recent years.
One way of doing this would be to launch a fiscal amnesty scheme offering protection from tax investigations (certainly not from criminal or money-laundering offences) to holders of Maltese lira cash who transfer the balances to a medium/long term special government bond, either through payment of a percentage penalty or through the payment of sub-market interest coupon on such bond. Such a bond should not be marketable but should be repaid in graduated annual installments in order to avoid the grave inflation risk for asset prices that will be caused by currency out of circulation suddenly rushing back into circulation.
Such a transfer should only be effected after licensed institutions conduct diligent “know-your-client” procedures to exclude, as far as is reasonably possible, any risk of there being a criminal origin to such funds. Unlike the Investment Registration Schemes, no secrecy should attach to the registration of cash, given that we are dealing with nameless assets rather than registered investments that were out of view of the taxman. All registrations should be notified to the Inland Revenue, the Central Bank and the Financial Intelligence Unit. Anyone who decides to come clean with the law should have no problem with the responsible authorities getting to know about it.
Until such a system is launched, it will be necessary for the authorities to tighten up control over the channels through which cash can be converted into other assets outside the official conversion system. All such channels, like the repatriation of Maltese liri cash from foreign sources, need to be carefully monitored to ensure there is no increase in volume beyond normal transaction levels. Cash deposits by business organisations beyond their normal seasonal patterns must be watched and, where deviated from, be properly explained or subjected to further investigation.
Between now and the conversion date, cash deposits out of the strictly normal course of business should be subjected to doubly strict investigation. No discretion should be allowed to permit the structuring of deposits of cash into the banking system, which reinforces the case for an early launch of the fiscal amnesty of cash declarations in order to get as much volume out of the way as possible, as early as possible.
This will help to ensure that there are sufficient resources to handle the necessary investigations when the time constraints for the conversion of residual cash begin approaching euro D-day.
Obviously, the average is deceptive, as most people would hold no more than a few notes and a handful of coins for truly transactional purposes. Others, however, must be holding some relatively large amounts in the form of cash for whatever reason they consider it appropriate to do so, but certainly not for genuine small cash transaction requirements. The fact that 88 per cent of the value is composed of Lm20 and Lm10 notes emphasises this point.
If, as proposed, we join the euro on
This must be a great and unique opportunity to straighten out a few things that have gone wrong over the many long years since we acquired our own currency. So it is amazing that while preparations have been made on all fronts for the euro conversion, including the putting of religion’s face on our euro coins – going against the Gospel’s own admonishment against mixing Caesar with God – no serious thinking seems to be going on to see how to make the most of this unique opportunity.
There must be a reason why people would prefer to hold cash in excess of normal transaction requirements and in the process paying the price in the form of forfeited interest. And this reason must have something to do with the objective of keeping such cash holding unregistered and anonymous.
People are prepared to forego not less than Lm10 million in interest each year purely to preserve, in anonymous form, their ownership of such financial assets, the real value of which is eroding each year through inflation. Basically, this means that they value their anonymity more than the interest and real value they are forfeiting.
It is therefore quite reasonable to consider whether the need to preserve anonymity over a cash holding has anything to do with a greater need to avoid being exposed as being on the wrong side of the law. However, one needs to make a clear distinction between those who need to preserve anonymity due to an infringement of criminal law and those whose motivation has more to do with the evasion of fiscal law. While all infringements of the law are serious, criminal infringements are much more serious than fiscal ones.
The conversion of such a massive cash holding in such a short time presents a once-in-a-life-time opportunity to bring offenders within the net of the law by a mixture of incentives and punitive measures.
Firstly, we need to make it extremely difficult, nay impossible, for criminal offenders to exchange their ill-gotten cash into new crisp euros. It is therefore important that administrative steps be taken as of now to make all conversions of cash subject to strict identification and registration.
People need to be reminded that anybody fronting for the true beneficial owners of such cash hoards are themselves guilty of participation in criminal activities and could expose themselves to severe fines and even imprisonment. Anyone exchanging Maltese liri cash into euro cash should be made to sign a declaration that he/she is the true beneficial owner of such cash or make a full disclosure of the beneficial owner’s identity.
Before exchanging cash, banks would have to conduct strict due diligence “know-your-client” procedures, which have to be sufficiently rigorous to deter criminals from attempting to exchange cash for euros through the official system.
Secondly, the authorities need to put together some form of fiscal amnesty, similar to the various foreign investment registration schemes of recent years, for those who are holding cash for fiscal reasons, giving them an opportunity to come clean against payment of reasonable penalties.
From a macro-economic point of view, measures have to be taken to avoid having a large amount of cash, that has been lying idle for such so many years, suddenly entering the normal economy, swamping it with additional excessive liquidity, and risking further asset price explosions in addition to what we have already experienced in recent years.
One way of doing this would be to launch a fiscal amnesty scheme offering protection from tax investigations (certainly not from criminal or money-laundering offences) to holders of Maltese lira cash who transfer the balances to a medium/long term special government bond, either through payment of a percentage penalty or through the payment of sub-market interest coupon on such bond. Such a bond should not be marketable but should be repaid in graduated annual installments in order to avoid the grave inflation risk for asset prices that will be caused by currency out of circulation suddenly rushing back into circulation.
Such a transfer should only be effected after licensed institutions conduct diligent “know-your-client” procedures to exclude, as far as is reasonably possible, any risk of there being a criminal origin to such funds. Unlike the Investment Registration Schemes, no secrecy should attach to the registration of cash, given that we are dealing with nameless assets rather than registered investments that were out of view of the taxman. All registrations should be notified to the Inland Revenue, the Central Bank and the Financial Intelligence Unit. Anyone who decides to come clean with the law should have no problem with the responsible authorities getting to know about it.
Until such a system is launched, it will be necessary for the authorities to tighten up control over the channels through which cash can be converted into other assets outside the official conversion system. All such channels, like the repatriation of Maltese liri cash from foreign sources, need to be carefully monitored to ensure there is no increase in volume beyond normal transaction levels. Cash deposits by business organisations beyond their normal seasonal patterns must be watched and, where deviated from, be properly explained or subjected to further investigation.
Between now and the conversion date, cash deposits out of the strictly normal course of business should be subjected to doubly strict investigation. No discretion should be allowed to permit the structuring of deposits of cash into the banking system, which reinforces the case for an early launch of the fiscal amnesty of cash declarations in order to get as much volume out of the way as possible, as early as possible.
This will help to ensure that there are sufficient resources to handle the necessary investigations when the time constraints for the conversion of residual cash begin approaching euro D-day.
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