I stumbled upon this ECB legal document that runs to the contrary and strangely has found no media attention.
While promoting the Euro as a safe store of value the ECB opts for tight limits on cash transactions in Greece, limiting the role of cash Euros as a medium of exchange, one of the fundamental functions of a currency.
Stating the objective to limit tax evasion the ECB recommends that all business transactions above €3,000 and all consumer expenses above €1,500 Euros shall be paid for in all other forms than cash.
The most important excerpts from the document:
On 26 March 2010 the European Central Bank (ECB) received a request from the Greek Ministry of Finance for an opinion on a draft law on restoring fairness in taxation and addressing tax evasion (hereinafter the ‘draft law’)...
Among other things, the draft law is intended to progressively establish the use of electronic invoices. Article 20 of the draft law introduces specific restrictions on cash payments in favour of other means of payment, in order to ensure the genuineness of transactions and underlying documents and to enable direct cross-checking of such transactions.
Article 20(2) of the draft law states that, for transactions between businesses, invoices and equivalent documents with a value exceeding EUR 3 000 shall be paid through business bank accounts or by cheques drawn on and paid to such accounts. These accounts will be connected to a secure electronic database held by the Ministry of Finance’s General Secretariat for Information Systems (GSIS). Banking secrecy is lifted for this purpose and banks may not charge fees for the operation of such business accounts.
Under Article 20(3) of the draft law, invoices with a value exceeding EUR 1 500 for the sale of goods or services to consumers shall be paid through a bank with debit cards, credit cards or cheques, and the use of cash will not be allowed...Whatever the reason given, this is a clear writing on the wall that limitations of the use of cash in the troubled Eurozone have become a central bank tool, contrary to free market philosophy.
Ironically on Thursday US Vice President Joe Biden praised Brussels as the capital of the free world. He could run into ATM problems on his next Greece trip.
Flight From the Euro and a New Gold High
Such measures are usually taken by defaulting governments harboring a desperate attack on citizens' wallets out of fear that they may flee the Euro, depositing their savings elsewhere.
When Argentina defaulted in 2002 money withdrawals were limited to the equivalent of $100 per week for a while. It probably will be similar in the case of a Greek default.
Currency controls do not go well with free-floating currencies, which are all only sinking at different speed vs. gold.
Speaking of gold it is worth of note that the yellow metal has seemingly broken its inverse correlation with Federal Reserve Notes (FRN), pushing the Euro price to a new record of 931 currency units per ounce in the wake of Trichet's press conference.
Euro thinkers are probably in for a double bonanza from a rising gold price and stronger FRNs where market expectations gradually slide closer to EUR/USD parity as Greece is only one part of the PIIGS disaster with the other troubled countries being an accident waiting to happen.
DISCLOSURE: Long gold bullion.