By all accounts the authorities don’t like cash: it fuels the grey economy, reduces the tax take by allowing people to hide undeclared income, and makes it easier for terrorists, criminals and drug dealers to carry our their dastardly deeds. Cash is also expensive to transport and store, and is not very secure – you can easily lose it, it can be forged and it can be stolen.
And so in recent years, reports pop up from time to time telling us that we would be better off without cash. Norway, Denmark, Sweden, China and the IMF have all promoted the idea of a cashless society. You may remember India actually banning the use of high value bank notes last November. Even Andy Haldane, the Bank of England’s Chief Economist, has floated the idea of replacing cash with a digital currency – one benefit he says is that it will allow central banks to impose negative interest rates as a way of stimulating the economy in times of stress.
However, for a growing number of people, therein lies the rub.
They feel uneasy about the level of control that this would give to governments. Without cash, they say, governments could ‘encourage’ us to spend by imposing negative interest rates on private bank deposits, or by introducing fees and charges on cash transactions. They could see what we are spending our money on, and there would be no hiding place at all for those unfortunate customers of ‘bust’ banks that need to be recapitalised (think Argentina in 2001, Denmark in 2011, Cyprus in 2013…)
Others are dubious about the security argument against cash, and they may have a point. You only have to think about the exponential rise of computer ‘ransomware’, and the staggering sums lost to hacking and assorted scams to know that crims and terrorists are doing very nicely now that they don’t have to bother about stealing our cheque books, or breaking into bank vaults.
If the doubters are right then public opinion will be our best form of defence. So will we be better of with cash, or without it? Answers on a postcard please…
In case you missed it, here is the article we first used in 2015, which we reproduced with the kind permission of Bill Bonner [emphasis ours].
Prepare for the abolition of cash
By Bill Bonner
You’ll think you have cash in the bank – but you won’t.
Without hard cash, you’ll be entirely at the mercy of the feds [the authorities].
Investors are losing confidence. Maybe they’re wondering how the world’s $200trn in total debt (roughly 300% of total output) can possibly be repaid. Or maybe they’re beginning to puzzle out how scammy and fraudulent the Fed’s policies are. But watch out! Reeling from the jabs of the last two weeks, expect a strong counterattack from the zombies and their allies [the people, businesses and organisations with whom the authorities have a shared interest].
Some Federal Reserve governor will come and tell us not to worry about a return to more “normal” interest rates anytime soon. And Wall Street shills will explain how markets become unreasonably fearful from time to time. They will tell investors to hunt for bargains. Why not? They may be right. There’s bound to be an inflationary blow-off up ahead. Stocks will soar. But not before they crash.
Meanwhile, watch out for that zombie counterattack. The feds will try to cut off our finances, trapping us between the anvil of the market’s deflation and the hammer of the Fed’s inflation. A couple of weeks ago, the Financial Times ran an article calling for the abolition of cash, titled: “The case for retiring another ‘barbarous relic’”. It claimed that cash causes “a lot of distortion in the economic system”.
Can you believe it? Cash causes economic distortions! From the FT: “The existence of cash – a bearer instrument with a zero interest rate – limits central banks’ ability to stimulate a depressed economy. The worry is that people will change their deposits for cash if a central bank moves rates into negative territory.” It also repeated familiar claims that cash is what finances terrorism, tax evasion, and the black market. Making cash illegal would “make life easier for a government set on squeezing the informal economy out of existence”.
You see where this is going, don’t you? If the feds are able to ban cash, they will have you completely under their control. You will invest when they want you to invest. You will buy when and what they want you to buy. You will be forced to keep your money in a bank – controlled, of course, by the feds. You will say that you have “cash in the bank”, but it won’t be true. All you will have is a credit against the bank. (Bank deposits are just IOUs from your bank to you.)
As it is now, your bank will have some cash on hand, but not nearly enough to satisfy all the claims against it. If this new attack succeeds, by law, it will have no access at all to cash. Nor will you. If the feds want to force you to spend, or invest, they will impose a “negative interest rate”. They will do this by imposing a fee, or tax, on deposits greater than the interest rate you receive on your savings.
In 2001 in Argentina, they shut the banks. When they reopened, dollar holdings had been converted to pesos, with a loss of roughly two-thirds. In 2013 in Cyprus, they hit large accounts with a 50% tax to help recapitalise the banks. In the US, JPMorgan Chase recently sent a letter to large depositors saying that, as of 1 May, it would charge a “balance sheet utilisation fee” of 1% a year. This pushed the net interest rate those depositors were earning into negative territory.
As stocks decline, you can expect more people to want to hold cash. If stocks go down 10%, the “opportunity cost” of holding cash goes down too. But if this encirclement manoeuvre works, you will be unable to get your hands on it. All you will have is a claim against some of the most insolvent debtors in the whole economy. In 2008, almost every major US bank was on the edge of bankruptcy. But if the feds succeed in cutting us off from cash, that will never happen again. The banks will just whack us all – with the full approval of the Fed, the cronies in Congress, and zombies everywhere – to make themselves whole again.
Already, several readers have reported trouble getting cash from their own accounts. Banks stall. They impose withdrawal limits. They want you to come in person. Right now, being unable to get cash promptly is merely a nuisance. But it won’t be long before new initiatives are announced to “stimulate demand”. Perhaps negative interest rates will do it. Maybe a more general tax. But sooner or later, the next credit crisis will hit hard. Then your inability to get cash will be more than a nuisance. It will be a deathblow. You will be locked into a bank account with a bankrupt institution. And the feds and their bank cronies will tell you when and how you can have access to your own money.
The feds will announce a “bank holiday”. They may ban transfers to gold sellers or foreign currency accounts. Or maybe it will just take time – while your money loses value rapidly – to get your money out. If this new campaign succeeds, it will be almost impossible to protect yourself.
- This article appeared in MoneyWeek in September 2015.