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Many commentators have noted that mainstream economists are calling to do
away with cash entirely.
It would be easy to scoff at these proposals as completely insane
if the Fed hadn’t published a paper back in 1999 suggesting the
implementation of a “carry tax” or taxing actual physical cash using an
expiration date if depositors aren’t willing to spend the money.
The author of this lunacy is a visiting scholar with the ECB, the
Fed, the IMF, and the Swiss National Bank. The fact that two of
those groups have already imposed negative interest rates (ECB and SNB)
should give warning that these sorts of ideas are actually taken very
seriously by Central Banks.
The paper, written 16 years ago, suggested that if the Fed were to find
that zero interest rates didn’t induce economic growth, it could try one of
three things:
1) A carry tax (meaning tax the value of actual physical cash
that is taken out of the system)
2) Buy assets (QE)
3) Money transfers (literally HAND OUT money through various
vehicles)
Regarding #1, the idea here is that since it costs relatively
little to store physical cash (the cost of buying a safe), the Fed should be
permitted to “tax” physical cash to force cash holders to spend it (put it
back into the banking system) or invest it.
The way this would work is that the cash would have some kind of magnetic
strip that would record the date that it was withdrawn. Whenever the bill was
finally deposited in a bank again, the receiving bank would use this data to
deduct a certain percentage of the bill’s value as a “tax” for holding it.
For instance, if the rate was 5% per month and you took out a $100
bill for two months and then deposited it, the receiving bank would only
register the bill as being worth $90.25 ($100* 0.95=$95 or the first month,
and then $95 *0.95= $90.25 for the second month).
It sounds like absolute insanity, but I can assure you that Central Banks
take these sorts of proposals very seriously. QE sounded
completely insane back in 1999 and we’ve already
seen three rounds of it amounting to over $3 trillion.
No one would have believed the Fed could get away with printing $3
trillion for QE in 1999, but it has happened already. And given that it has
failed to boost consumer spending/ economic growth, I wouldn’t at all
surprised to see the Fed float one of the other ideas in the coming months.
Indeed, JP Morgan has already begun implementing a similar scheme by
forbidding the storage of cash in its safe deposit boxes.
As of March, Chase began restricting the use of cash in selected
markets, including Greater Cleveland. The new policy restricts
borrowers from using cash to make payments on credit cards, mortgages, equity
lines, and auto loans. Chase even goes as far as to prohibit the
storage of cash in its safe deposit boxes .
In a letter to its customers dated April 1, 2015 pertaining to its
"Updated Safe Deposit Box Lease Agreement," one of the
highlighted items reads: "You agree not to store
any cash or coins other than those found to have a collectible
value." Whether or not this pertains to gold and silver coins with
no numismatic value is not explained.
https://mises.org/blog/chase-joins-war-cash
Here is the single largest bank in the US, forbidding
depositors from storing cash in a storage box or safe deposit box at their
bank. And virtually no one even responded in outrage.
Again, the Fed has declared a War on Cash, and a “carry tax” is coming.
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