In this report, Visa Inc. (NYSE:V) and MasterCard Incorporated (NYSE:MA).
Italy’s new Prime Minister Mario Monti has recently introduced a draconian financial police state measure that bans all cash transactions over €1,000 ($1,340). Italian’s are Eurozone’s biggest savers, partially because people have been used to rely on cash when making purchases – even on such things as monthly rent payments or larger household purchases. Businesses may use cash to pay salaries, allowing employees to underreport their incomes.
This leads to lower tax revenues. It is estimated that Italy might lose as much as $130 million a year in unpaid taxes.
The 1000 euro cash limit is incredibly low. It practically means that Italians will have to start relying on the banking system and allow the financial big brother to track their every move – from income to purchases. You can no longer spend your money freely. In fact, if you buy a new flat screen TV (costing over 1000 euros) using cash, you are now subject to criminal penalties!
This is certainly bad news for ordinary Italians. Life is suddenly about to become much more expensive for a lot of people. Italy’s Value-Added-Tax alone is one of Europe’s highest, 23 percent! While Monti believes he can solve Italy’s financial problems with de facto tax increases and more monitoring, he may soon find out that his move may actually lead to lower economic activity as formerly black market services become unavailable or unaffordable.
How can you benefit from Monti’s monstrous move? If Italians are forced to stop using cash, they may switch to credit and debit cards instead and start using bank accounts and wire transfers. While it might not be a good idea to roll the dice and invest in potentially risky Italian banks, companies like Visa (NYSE:V) and MasterCard (NYSE:MA) could benefit from the cash ban. After all, they will simply take a cut of each transaction instead of extending credit to consumers.
If the public finances continue to deteriorate in Europe and elsewhere, you might see similar cash bans in other countries as well. In fact, do not be surprised if your cash would be no good in the U.S. sometime in the future! After all, the national debt is close to $15 trillion and snowballing.
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