WAR ON CASH INTENSIFIES
November 20, 2016 – 5:03 am
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The government, media, banks, and even academia have formed a single, unified chorus to push this idea out to consumers that “cashless” is good for everyone. And it’s happening across the planet, from Australia to India to Europe to North America. Simon Black points to the danger of virtual money.
Less than a week after India’s surprise move to scrap its highest denomination cash notes, another front in the War on Cash has intensified down under in Australia. Yesterday (November 15, 2016), banking giant UBS proposed that eliminating Australia’s $100 and $50 bills would be “good for the economy and good for the banks.” (How convenient that a bank would propose something that’s good for banks!)
This isn’t the first time that the financial establishment has pushed for a cashless society in Australia (or anywhere else). In September 2015, Australian bank Westpac published its “Cash Free Report”, suggesting that the country would become cashless by 2022. In July 2016, Australian payments firm Tyro published an enormously self-serving blog post touting the benefits of a cashless society and saying, “it’s only a matter of time.” Most notably, two days ago, Citibank (yes, THAT Citibank) announced that it was going cashless at some of its Australian branches.
The media and political establishments have chimed in as well. In February of this year, the Sydney Morning Herald released a series of articles, some of which were written by officials from Australia’s Department of the Treasury, suggesting that eliminating cash will “save billions”, and that “moving to a cashless society is the next step for the Australian dollar”.
This is how it works. The government, media, banks, and even academia have formed a single, unified chorus to push this idea out to consumers that “cashless” is good for everyone. And it’s happening across the planet, from Australia to India to Europe to North America.
They’re partially right. Going cashless probably will save a lot of money; paper currency is costly to transport in large quantities due to the need for security. It’s also accurate to suggest that going cashless will be “good for the banks.” As UBS pointed out yesterday, “de-monetizing” Australia’s $50 and $100 bills would force anyone holding those notes to deposit them back in the banking system. Bank deposits would rise as a result and, consequently, so would bank profits.
Governments would benefit from a cashless society because all savings would be in the banking system, and they have full regulatory control over the banks. This means that your politicians would have more control over your savings and fewer obstacles to impose capital controls or engage in Civil Asset Forfeiture. Even policy wonk academics would have a rare opportunity to take their lousy theories and PhD dissertations for a test drive. Everyone benefits from a cashless society… except for you.
For individuals, cash still has plenty of important advantages. Cash is one of the few remaining options for financial privacy that doesn’t create a permanent record of every purchase or transaction you make. It’s also an easy way to reduce your exposure to risks in the broader financial system.
There’s also the fact that, the moment you make a deposit at a bank, it’s no longer your money. It becomes the bank’s money. And they can do with it as they please, whether it’s freezing you out of your account or making idiotic investments with minimal reserve requirements.
Think about it - the banking system is full of institutions that never miss an opportunity to demonstrate they cannot be trusted with our money. Hardly a month goes by without some major banking scandal; they’re caught colluding on exchange rates, manipulating interest rates, fraudulently establishing fake accounts without customer consent (and then charging us fees on top of that). It’s disgraceful.
In addition, bank safety is far from certain. In many banking systems across the world (especially in Europe right now), banks have precariously low levels of capital and are already suffering the effects of negative interest rates. Even in the United States, banks routinely employ very clever accounting tricks to conceal their true financial condition.
There’s also the fact that, the moment you make a deposit at a bank, it’s no longer your money. It becomes the bank’s money. And they can do with it as they please, whether it’s freezing you out of your account or making idiotic investments with minimal reserve requirements. You have no say in the matter.
As a bank depositor, you’re nothing more than an unsecured creditor of a financial institution which may or may not allow you to withdraw your own savings. If you don’t believe me, take a trip down to your bank and ask to withdraw $25,000. See how quickly they treat you like a criminal terrorist. Bottom line, conventional banking is not risk-free.
And holding cash is one way to reduce that risk. Cash essentially eliminates the middleman between you and your savings… at least, the portion of your savings that can be easily exchanged for goods and services in the economy. Cash is a pitiful store of value over the long-term. Precious metals and other real assets are much better alternatives. But we still can’t walk into Starbucks and pay for a cup of coffee with a quarter-ounce silver coin. So until that day comes, cash remains an asset that you’ll want to hold.
Just make sure you don’t go overboard. The War on Cash is very real. So if you have more than a couple of months’ worth of living expenses, you’re taking on unnecessary risk. Also, keep the denominations low. As the case with India shows, governments have no compunction about violating the public trust with immediate effect and without warning. So if you’re in the US, don’t keep a mountain of $100 bills in your safe. Keep 10s, 20s, and 50s. If you’re in Europe, definitely avoid the 500 and 200 euro notes, opt for 20s and 50s.
Note: Simon Black is an international investor, entrepreneur, and founder of Sovereign Man. His free daily e-letter Notes from the Field is about using the experiences from his life and travels to help you achieve more freedom, make more money, keep more of it, and protect it all from bankrupt governments. The above article was posted at sovereignman.com.
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INDIA RUPEE CRISIS: THE VILLAGE WITH CASH WORTH NOTHING
On November 8, 2016, Indian Prime Minister Narendra Modi announced that the 500 (US$7.60) and 1,000 rupee banknotes will be withdrawn from the financial system overnight. The surprise move was part of a crackdown on corruption and illegal cash holdings. Modi’s move certainly left people holding nothing. For those who have money in their bank accounts, there isn’t enough cash in the banks for everyone to withdraw. For those without bank accounts and still holding cash, overnight, they end up holding worthless paper.
Indian banks are running out of replacement money after the government scrapped 86 per cent of the cash in circulation last week.
It is 05:00 in Kirdola village, some 400km (250 miles) north-west of the Indian capital Delhi. Winter is setting in and there is a sharp chill in the air. But very few people can be seen at the village square or the local teashop… Instead, the action has shifted to the local branch of the Bank of Baroda where, already, there are about 50 people standing in a queue. Many of them are squatting on the ground, huddled together to stay warm, men on one side, women on the other. “It’s been like this for the past few days,” Nizam Khan tells me. “The bank opens and then it runs out of money really quickly. There are some of us who have been coming here for four days.” Farm worker Jowara Ram is pacing up and down, looking extremely anxious.
“It’s my daughter’s wedding tomorrow,” he tells me, fishing out a beautifully illustrated invitation. “We have absolutely no money left at home. They told me to hand in my old notes, so I gave the bank everything, about 100,000 rupees ($1,475) that my whole family had.” He has been coming to the bank every day but every single time, cash ran out before it was his turn. “That’s why I’ve come so early. I’ve brought my wife, my daughter, my sisters - everyone’s in the queue so that we can get some money out between us.”
It’s now 10:00 and there is a stirring in the crowd as a portly man gets off a scooter and makes his way through the throng to the cast iron sliding gates at the bank entrance. He is the bank manager. But as he unlocks the gate, he turns around and addresses the crowds: “Only deposits today. I have no cash to give out”…
Mahesh Kumar has travelled 40km to come here, armed with 400,000 rupees ($5,895) in the banned notes. “There are 32 of us in my family. This money belongs to all of us.” But Mr Kumar, like the vast majority of rural Indians, does not have a bank account. And the bank has no time to open one for him.
“What am I to do now?” he asks showing me a duffle bag stuffed with money. “They tell me this money is worthless. Does that mean our savings are wiped out?” The impact of the currency crisis, however, goes beyond individual households.
It is hurting the entire rural economy. - Sanjoy Majumder, BBC
Click here for the article.
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