As everyone knows by now, the Federal Reserve’s main tool in economic
warfare has become hyper low interest rates and, thus, extremely cheap money
for large institutions vis-à-vis the
controversial reign of QE – quantitative easing.
Now, the how-low-can-you-go climate has created negative interest rates,
meaning not only that many investments carry no return but that many deposits
cost money.
Well-known Citigroup economist William Buiter says the solution to
this backwards market is to reign in the appeal of normal currencies like
cash – because it is “causing problems” for central bank manipulation:
When economic conditions worsen, they react by reducing interest rates in
order to stimulate the economy. But, as has happened across the world in
recent years, there comes a point where those central banks run out of room
to cut — they can bring interest rates to zero, but reducing them
further below that is fraught with problems, the biggest of which is cash in
the economy.
Negative interest rates are rendered ineffective by the “effective lower
bound” – essentially the point at which a reasonable person would stop
depositing money into banks and bonds at cost and instead hold cash, which
while it doesn’t produce interest, certainly remains liquid and tangible.
From an economist point of view however, it is cash holders who must be
reigned in (not Wall Street or the central banks):
Fundamentally, the ELB [effective lower bound] problem comes down to cash.
According to Buiter, the ELB only exists at all due to the existence of cash,
which is a bearer instrument that pays zero nominal rates. Why have your
money on deposit at a negative rate that reduces your wealth when you can
have it in cash and suffer no reduction?
Cash therefore gives people an easy and effective way of avoiding
negative nominal rates.
The solution? For these big players, it is a simple matter of banning, or
at least penalizing, cash and other straight forward currencies with
additional transaction fees:
Buiter’s note suggests three ways to address this problem:
Abolish currency.
Tax currency.
Remove the fixed exchange rate between currency and central bank
reserves/deposits.
SHTF reported only days ago about the shift in the
treatment of cash, with JPMorgan’s CEO Jamie Dimon also called to reign in
cash by charging customers the “true cost” of using these everyday
instruments:
Moreover, JPMorgan and other big banks are expanding their
policies of charging customers to hold deposits, validate funds and make
transactions – charges that JPMorgan sees as the “true cost of moving money.”
With new measures for cybersecurity, fraud protection and payment
verification in mind, JPMorgan is slated to tack on new processing fees and
add costs for all transactions, and especially ‘outmoded’ payments like cash
and checks and the loafing “free riders” who use them.
Regarding cash, Dimon stated:
We need to build a real-time system that properly charges
participants for usage, allows for good customer service, and minimizes fraud
and bad behavior.
Will they really ban cash?
For his part, Buiter admits there are disadvantages to banning cash –
particularly for little people who still deal in paper money, the poor, those
operating in community markets and for those concerned with privacy. He lists:
1.
Abolishing currency will constitute a noticeable change
in many people’s lives and change often tends to be resisted.
2.
Currency use remains high among the poor and some older
people. (Buiter suggests that keeping low-denomination cash in
circulation — nothing larger than $5 — might solve this.)
3.
Central banks and governments would lose seigniorage revenue.
4.
Abolishing currency would inevitably be associated with a loss
of privacy and create risks of excessive intrusion by the government.
5.
Switching exclusively to electronic payments may create new
security and operational risks.
But ultimately, Buiter doesn’t care. To him, these are “weak” arguments
against banning cash, and apparently anything and everything should be done
to keep the bizarro system of money flowing – and power over the entire
economy in the hands of the Federal Reserve.
Never mind that it will only benefit those at the top, or that it will
punish the poor and working classes – even in the most ordinary of
transactions – while forcing that masses onto an electronic platform that can
be tracked and restricted based upon rules from the top.
Apparently, that has been the agenda for decades, with plans to control
the population through a digital, cashless control grid.
Once that point is reached, cash won’t just be obsolete, it will be
criminal. It is coming. The question is how soon will it arrive?
