Rogoff begins asking the question: “Has the time come to consider phasing out anonymous paper currency, starting with large-denomination notes?”He goes on to explain that getting rid of paper currency would provide two critical benefits:1) It would reduce crime and tax evasion;2) It would allow central banks to drop interest rates BELOW ZERO.I was stunned. Though given the status quo thinking we have to put up with today, I really shouldn’t have been.In fairness, Mr. Rogoff is an academic. It’s his job to dispassionately analyze data and render conclusions, whatever they may be. What’s scary is that some dim-witted politician will likely jump all over this.People have been deluded into believing that only criminals and tax cheats hold cash in large denominations. And the conclusion is that if we ban cash, criminals will simply quit their craft because they’ll no longer have an officially-sanctioned medium of exchange.This is total baloney, obviously. Banning cash doesn’t eliminate crime. It just creates a new cottage industry for cash alternatives.Drug deals can just as easily go down swapping share certificate of Apple. Or title to a new car. Any number of things.Perhaps the more important point, however, is the notion that eliminating cash frees up central bankers to force interest rates into negative territory.The contention is that the official data tells us that inflation is tame. Consequently, central banks should be free to expand the money supply and ratchet down interest rates even more.There’s just one problem: interest rates are basically at zero already.Technically a central banker could drop interest rates to below zero.But if they did that, who in his/her right mind would hold their savings at a bank where they would have to PAY THE BANK to make wild bets with their money?People would just go to physical cash instead.Solution? Eliminate cash! Then people would be forced to suffer NEGATIVE interest rates… and thus have a HUGE INCENTIVE to spend as much as they can as quickly as they can. Forget about putting something aside for a rainy day.But hey, at least the stock market would probably rise.Now, I highly doubt that physical cash is going to be sucked out of the system… tomorrow. But the War on Cash is very real indeed.As I travel around the world, I’ve seen with my own eyes– CASH has become the #1 hot button item for customs agents everywhere. They even have highly trained cash sniffing dogs now.It’s becoming more and more obvious that people should divorce themselves from this system and consider holding at least a portion of their savings in something other than fiat currency.And of all the options out there, it’s hard to beat the convenience and tradition of precious metals.
The art of economics consists in looking not merely at the immediate hut at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups—Henry Hazlitt
Friday, May 30, 2014
Kenneth Rogoff’s War on Cash
Tuesday, March 18, 2014
The Importance of Cash: The case of the €500 Note
After the collapse of Lehman Brothers in 2008, public’s faith in banks wavered in many countries, sending people to exchange their savings for cash. Demand for the euro banknotes surged in and outside the euro area. “We could have not handled it without the €500 note,” Mr. Heinonen said.
Wednesday, August 21, 2013
Expect the War on Bitcoin to Spread to Gold and Silver
It was just last week in the Land of the Free that a Federal judge declared Bitcoin to be a currency.And almost immediately after, the SEC announced ‘investigations’ into the digital currency.(You remember the SEC, the guys who are tasked with protecting the public from dodgy investments… yet they routinely give their blessing to the likes of Madoff, Enron, toxic mortgage bonds, etc.)This seems to have started a chain reaction.Yesterday the German government took formal steps to recognize Bitcoin as form of ‘private money’, and subsequently rolled out steps to tax it.TRUTH: These moves have nothing to do with consumer protection. Or raising tax revenue, for that matter.What they’re really trying to do is send a clear message– if you use Bitcoin, there will be consequences.This isn’t even really about Bitcoin. The big picture issue is that governments are scared to death of currency alternatives catching fire.With so much debt and monetary stress in the global economy, it’s becoming increasingly clear by the day that the current fiat experiment is in serious trouble.The only reason it still works is because (a) people continue to have confidence in the system, and (b) there really is no mainstream alternative to holding paper currency.This last fact is paramount. If a viable currency alternative were introduced that became mainstream and popular, governments would no longer be able to perpetrate the fraudulent monetary system. The game would be up.Consequently, they have a huge incentive to stomp out any currency alternative at the first sign of going mainstream.Bitcoin is one such currency alternative that has started to creep into the mainstream press. As such, Western governments are now working diligently to eliminate its appeal as quickly as possible.I expect they’ll use similar tactics down the road with precious metals.Though the market for gold is so much larger, it is still widely viewed by the majority of investors as a ‘commodity’, not money… and certainly not a currency alternative.People typically speculate in gold hoping to sell at a higher nominal price, thus generating a return in paper currency terms.But this is starting to change.Right now we’re in an accumulation and education phase. As more people begin losing confidence in the system, the benefits of holding physical gold instead of paper are becoming more clear to the public.Meanwhile, people are starting to accumulate their first, small positions in gold and silver.Eventually, though, as the unwinding of this central banking fiat system accelerates, we’ll hit another phase in which precious metals become a medium of exchange.I’ve seen this already in a number of countries around the world, particularly in Asia. People trade gold for land, silver for food, etc.But the concept will become more mainstream in the West, and we’ll see a number of signs.For example, all the “we BUY gold” stores will start advertising “we SELL gold”. Gold and silver will be written into summer blockbuster films. Certain consumer goods will be quoted in grams or miligrams of gold.It’s at this point that the concept of precious metals as a currency alternative will enter the cultural psyche.And you can be sure that governments will use these exact same tactics to eliminate this threat… because there’s really no limit to how far they’ll go to protect their fraud and keep the party going just a little bit longer.They’ll ‘investigate’ gold, if such a thing is even possible. Uncle Sam will sick the SEC and IRS on gold, claiming tax evasion, terrorist financing, and investment fraud.And they’ll make a big fuss about gold-related taxes, going so far as to declare massive windfall profits taxes, or even imposing a ‘precious metals wealth tax’ that penalizes anyone holding gold.This is one of the strongest reasons to hold gold overseas, locked away in a stable jurisdiction out of their control. And when set up properly, such holdings are completely private and non-reportable.
Friday, July 12, 2013
War on Cash: Paying Cash Leads To Police Raid
It all started one Saturday morning when Jarl Syvertsen, a 59-year-old disabled Norwegian man, purchased a PC, TVs, and washing machines for 80,000 kroner (roughly US$13,000) which he paid in cash. The store immediately alerted the police about the large cash payment. On Sunday a male and a female police officer appeared on Mr Syvertsen’s doorstep. Upon seeing them, Mr. Syvertsen at first feared that something may have happened to his mother, who is 86 years old and resides in a nursing home. But the police were there with a warrant to search his home, charging that the cash he had spent was money that “came from a criminal offense.” In fact, the money was actually part of an approximately one-million dollar advance on an inheritance he had received. Mr. Syvertsen attempted several times to explain to the officers where the money had come from and to show them a letter confirming that fact, but they would have none of it and proceeded to invade his home and his privacy. Eventually the police realized their error and left his home.Although the police now admit that they investigated Mr. Syvertsen prior to the warrant being issued and found that he had never been implicated in any criminal activity, they insist that “there were reasonable grounds to suspect” criminal activity given the “sum of the information available,” that is, the large cash payment. As Mr. Syvertsen points out, however, had the police waited until Monday, the matter could have been resolved “in a single phone call to the bank.” But the police are unrepentant and have the unmitigated gall to lecture law abiding citizens against carrying large sums of cash on their persons for their own safety–against private thugs, not police thugs of course. According to acting station commander Jarle Kolstad:It is far safer to pay such large amounts [with] cards than to go with 80,000 [kroner] in cash on the body. Not because you risk getting the police at the door [really?], but because it is safer to use the cards. . . .Mr Syvertsen’s reply to such self-serving nonsense?It’s not stamped on my forehead that I have 80,000 [kroner] on the inside pocket, so I judge [it] as quite safe. Besides, I have previously experienced not [being able to] pay because payment terminals are down. Therefore, I chose to pay with cash, and there is no prohibition [against it] in Norwegian law. . . .In the aftermath of this egregious home invasion, Mr. Syvertsen is suing the police for compensation. In the meantime, his experience with such lawless and arbitrary police conduct makes him feel unsafe in his own home and leaves him wondering “How low the threshold is supposed to be for police to intrude into private homes”? Well Mr. Syvertsen,as in the case of any government war against its own people (e.g., the War on Drugs, the War on Terror etc.) the threshold is very low indeed.
Saturday, May 18, 2013
War on Cash: Nigeria and Ghana Experiment with Cashless System
Last week at the World Economic Forum on Africa held in Cape Town, South Africa the Nigerian National Identity Management Commission (NIMC) and MasterCard announced their collaboration with plans to roll-out an initial 13 million MasterCard-branded National Identity Smart Cards with electronic payment capability.The 13 million cards will form part of a pilot program which will see the West African country’s citizens who are 16 years and older and those who have been residents in Nigeria for more than two years being issued with the new National Identity Smart Cards.This announcement by Nigeria sees it following in South Africa’s footsteps as the country’s Department of Home Affairs has announced that it intends starting to issue smart ID cards to citizens starting in July, 2013 at a rate of 3 million smart ID cards a year.It is hoped in both cases that the smart ID cards will help curb the prevalent fabrication of false identity documents in both Nigeria and South Africa as they will be embedded with microchips and with the South African smart ID cards being reported to incorporate biometric features that will also prevent identity theft as a result of the fraudulent use of a stolen or lost smart ID card.There is also a notable difference between the South African and Nigerian smart ID cards with the West African country’s smart ID cards coming with immediate payment capability’s courtesy of MasterCard’s prepaid payment technology. The cards are also reported to come loaded with 12 other applications.
Ghana, as a developing country in West Africa has taken the initiative to introduce a system where businesses can be done without using physical cash. Bank of Ghana, the regulator of the banking industry through Ghana Interbank, Payment and Settlement Systems (GhiPPS) introduced e-zwich card, where Ghanaians will feel comfortable in using the card to transact businesses rather than physical cash.Even though there has been several effort to educate the masses about the product, the education on this e-zwich have not go well with many Ghanaians. A lot of the citizens as of today do not even know there is something called e-zwich card. With a population more than half of it been illiterate, there must be a thorough education where all Ghanaians will understand and use the platform.In Ghana, some of the common cards we can identify are such as Sika Card by SSB, Visa Horizon by Standard Chartered Bank (Stored Value cards), deployment of Automated Teller Machines (ATM) and ATM cards by banks eCard (CAL Bank, Ecobank) and among others.
Thursday, April 25, 2013
Cash Hoarding No Security Against Confiscation, UK’s Panic Buying of Physical Gold
Britain’s Royal Mint, established in the 13th century, sold more than three times more gold coins this month than a year earlier as prices declined.Sales are more than 150 percent higher than last month, according to Shane Bissett, director of bullion and commemorative coin at the Royal Mint. Gold is down 11 percent this month, heading for the biggest drop since September 2011.
Friday, March 29, 2013
War on Cash and Informal Economy: Russia to ban Transactions over $10,000
Russia may ban cash payments for purchases of more than 300,000 rubles (around $10,000) starting in 2015. The move is expected to boost banks’ cash reserves and put a damper on Russia’s shadow economy. However, the middle class will most likely end up having to pay the price for the scheme.Moscow is looking to kill two birds with one stone: Firstly, it wants to bring some of the population’s “grey” income out of the shadow; secondly, it wants to increase the volume of cash reserves in the banks. The government’s bill will introduce the new rule to the State Duma. The document was prepared by the Ministry of Finance and approved by the government.
The restrictions on cash transactions will develop in two phases. In 2014, a ban on cash payments for purchases worth more than 600,000 rubles (about $19,500) will be introduced; the limit will then be halved to 300,000 rubles in 2015. Furthermore, the document introduces mandatory, cash-free, salary payments.Smaller companies with fewer than 35 employees will be the only exception, and trade companies will be able to pay salaries in cash if they employ no more than 20 people on staff.
Even now, cash withdrawals on payday account for around 85 percent of all ATM transactions. Moreover, in 2005–2011, cash flows more than quadrupled. According to Bank of Russia estimates, more than 90 percent of all commodity purchases in Russia are paid for in cash.The government is now trying to bring the shadow economy into the light and increase money flows into the treasury, according to Investcafe analyst Yekaterina Kondrashova. In her words, as soon as the new rules come into effect, those using unofficial wage payment schemes will encounter certain difficulties, although there could be some ways to circumvent the law.
The Ministry of Internal Affairs and the National Anticorruption Committee estimate the market for money laundering and cash conversions at somewhere between 3.5 and 7 trillion rubles ($113–230 billion) — about 60 percent of the Russian federal budget.Rosstat reports that the volume of the shadow economy (“grey” money from tax evasion, compensations paid as “cash in envelopes” and violations of currency and foreign trade regulations) is at least 15 percent of the GDP, according to Ricom-Trust senior analyst Vladislav Zhukovsky.Given the substantial criminal activity and illegal entrepreneurship, the grey and black economies account for 50–65 percent of GDP. Even former Central Bank Chief Sergey Ignatyev had to admit that about $50 billion was taken out of Russia illegally in 2012 alone.
There is another side to the move toward plastic, however. Cash-free payments will result in higher prices for some goods and services. The middle class will suffer the most, because the “risk group” includes property and automobile transactions. The luxury segment will also be affected, including customized tours.The problem is that Russian banks charge commissions ranging from 2–4 percent of the total amount of cash-free transfers. Sberbank charges up to 2 percent, says Irina Tyurina, spokesperson for the Russian Union of Travel Agencies.
Friday, October 19, 2012
Mexico’s Government Declares War on Cash
Mexican President Felipe Calderon has signed into law a ban on large cash transactions as part of an effort to fight money laundering that experts estimate may amount to around $10 billion per year in Mexico.The bill forbids buyers and sellers from giving or accepting cash payments of more than a half million pesos ($38,750) for real-estate purchases. It also forbids cash purchases of more than 200,000 pesos ($15,500) for automobiles or items like jewelry and lottery tickets.
By virtue of their position and the influence that they may hold, a PEP generally presents a higher risk for potential involvement in bribery and corruption. Most financial institutions view such clients as potential compliance risks and perform enhanced monitoring of accounts that fall within this category….PEP-specific compliance legislation underlines the link between corrupt politicians, money laundering and the financing of terrorism. Since September 11, 2001, more than 100 countries have changed their laws related to financial services regulation, with the fight against political corruption playing a fundamental role. Despite attempts at regulation, certain political leaders like Muammar Gaddafi and Hosni Mubarak have made news for having frozen assets located in US banks that did not follow these processes for these individuals.
As governments stifle people’s social and commercial activities through tyrannical laws, expect the use of more cash, local currencies or commodities (such as Tide) as alternative medium of exchanges, as the informal or shadow economies grow.Most importantly, real assets will become more valuable and may become an integral part of money, as sustained policies of inflationism, as Voltaire once said, will bring fiat money back to its intrinsic value—zero.
Saturday, March 31, 2012
Use Cash for Freedom
I had a gruesome first hand experience on how governments disdains the use of cash.
Sadly this has not been an isolated experience, but a deepening troublesome political trend around the world, particularly in developed economies.
Governments would like to confiscate more of the public’s resources to finance their lavish ways. So the compulsion to transact through their institutional accomplices, the politically endowed banking system.
Through stricter unilateral regulations or immoral laws, governments through the banking system place the public’s hard earned savings under intense scrutiny, and criminalize the actions of the innocent, whom have been uninformed by the rapid pace of changes in manifold regulations covering a wide swath of social activities through the banking system.
Private transactions which does not conform with the goals and the interests of the political authorities risks confiscation. Worst is the trauma of being labeled a criminal. Increasingly desperate governments have wantonly been in violation of the property rights of their citizenry.
A vote against government is to use cash transactions, that’s because cash, according to Charles Goyette at the LewRockwell.com, represents freedom
Mr. Goyette writes, (bold emphasis mine)
Governments hate that cash gives you anonymity. And they are often very anxious to track it and to control your use of it. They often attempt to criminalize the use of cash or at least criminalize having too much of it around.
Right now, 7% of the U.S. economy is cash-based. Across the Eurozone, it's a little bit higher, 9%, but in Sweden cash transactions are falling by the wayside. You can't use cash for buses there. A growing number of businesses are going entirely cashless. In fact, only 3% of all purchases in Sweden are transacted in cash. And some people think that 3% is too much.
Now, there are things you give up when you go cashless, and privacy is only one of them. Because you also give up a piece of every transaction to the facilitating financial institution, a state-approved financial institution that is going to take a cut one way or another of every purchase that it processes. And that cut will be paid by you.
In the United States, the government has implemented increasingly punitive and burdensome measures for those who use cash. Banks, for example, are required to file reports on the use of cash in certain circumstances, including suspicious persons reports for some cash activities. In fact, if you seem to be trying to transact in cash below the reporting threshold, that alone can trigger a suspicious persons report on you. Like a lot of the states' heavy-handed measures, this was all targeted at getting those drug dealers.
As earlier pointed out, governments has used all sorts of "noble" excuses like money laundering, tax evasion, the war on drugs and etc… to justify their confiscatory actions which in reality represents no more than financial repression.
And as governments tighten the noose on the public, people will intuitively look for ingenious alternatives to outflank such oppressive policies.
In the US, the liquid detergent Tide appears to have emerged even as an alternative to cash.
Writes Professor Joseph Salerno at the Mises Institute.
As has been widely reported recently, an unlikely crime wave has rapidly spread throughout the United States and has taken local law-enforcement officials by surprise. The theft of Tide liquid laundry detergent is pandemic throughout cities in the United States. One individual alone stole $25,000 worth of Tide detergent during a 15-month crime spree, and large retailers are taking special security measures to protect their inventories of Tide. For example, CVS is locking down Tide alongside commonly stolen items like flu medications. Liquid Tide retails for $10–$20 per bottle and sells on the black market for $5–$10. Individual bottles of Tide bear no serial numbers, making them impossible to track. So some enterprising thieves operate as arbitrageurs buying at the black-market price and reselling to the stores, presumably at the wholesale price. Even more puzzling is the fact that no other brand of detergent has been targeted.
What gives here? This is just another confirmation of Menger's insight that the market responds to the absence of sound money by monetizing highly salable commodities. It is clear that Tide has emerged as a subsidiary local currency for black-market, especially drug, transactions — but for legal transactions in low-income areas as well. Indeed police report that Tide is being exchanged for heroin and methamphetamine and that drug dealers possess inventories of the commodity that they are also willing to sell.
As governments stifle people’s social and commercial activities through tyrannical laws, expect the use of more cash, local currencies or commodities (such as Tide) as alternative medium of exchanges, as the informal or shadow economies grow.
Most importantly, real assets will become more valuable and may become an integral part of money, as sustained policies of inflationism, as Voltaire once said, will bring fiat money back to its intrinsic value—zero.
Money which emerges from the markets will be emblematic of freedom.
Monday, January 16, 2012
Italian Government Restricts the Use of Cash
My wretched airport experience last year has a link to what’s going on in Italy.
Basically global governments have used money laundering as an excuse or as a front to compel the public to migrate their transactions into the politically privileged banking system so that these transactions can be monitored and subsequently bankrolled to finance the governments. I think this represents part of the financial repression.
From Bloomberg (hat tip Bob Wenzel) [bold emphasis mine]
Prime Minister Mario Monti, in office just over a month, wants landlords, plumbers, electricians and small businesses to stop conducting large transactions in cash, which critics say helps them evade taxes. The government on Dec. 4 reduced the maximum allowed cash payment to 1,000 euros from 2,500 euros.
“If they force us to use credit cards, prices will go up,” said d’Andrea, noting that many retailers offer discounts to customers who pay in cash and don’t demand a receipt, in effect splitting with them the savings from evading the country’s 21 percent sales tax. She may curtail future purchases if she’s unable to use cash, d’Andrea said.
Italy loses more than 120 billion euros in unpaid taxes every year, according to the Equitalia tax collection agency. The country spends another 10 billion euros annually on security and labor for processing cash transactions, according to banking association ABI.
Debt Crisis
Monti is focusing on curtailing evasion as one way to reduce Italy’s 1.9 trillion-euro debt, which is bigger than Spain, Greece, Ireland and Portugal’s combined. Investor concern that Italy remains at risk of being overwhelmed by the region’s debt crisis pushed the country’s borrowing costs to euro-era records last month.
In Europe, Italy has a large shadow or informal economy (chart from the Economist) which implies that transactions are not being taxed and are usually done on cash basis and outside the banking system, thus the so-called “evasion”.
Yet in reality informal or shadow economies are symptomatic of the markets circumventing burdensome and stifling regulations, tax payments and social welfare contributions as previously discussed.
So essentially debt strapped governments like Italy has launched a war against their informal economy.
Such dynamic can be seen from the succeeding portion of the same article (bold emphasis mine)
The reform pits the government against some Italians who prefer to pay for everything from wedding receptions to home renovations with cash, allowing merchants to underreport or not declare the revenue, and gaining a discount in exchange. Many small companies pay salaries in cash, allowing employees to report less income, the Finance Ministry said last year.
“Businesses make us accomplices, because nobody wants to pay extra on a large transaction,” said Adele Costantini, a professor of medicine in the southern region of Abruzzo, who had to argue to get a receipt from a house painter. “I want them to pay the tax, not unload it on me.”
Italians are the euro region’s least-indebted consumers and among its biggest savers, according to data from the European Union’s statistics office, Eurostat. Their frugality may be at least partly linked to a distrust of paying with anything other than cash. Italian credit-card holders use their cards on average only 26 times per year, or five times less than in the U.K., according to the Bank of Italy.
‘Culture of Cash’
“The culture of cash is strongly ingrained in Italians, even those that don’t evade,” Deputy Finance Minister Vittorio Grilli said at a Dec. 5 press conference in Rome. The government initially wanted to set a 300-euro or 500-euro cash limit but decided against it, Grilli said, reasoning that citizens needed time to adapt to new rules.
These are manifestations of the welfare state-central banking-banking cartel facing continuing tremendous pressures to preserve the current unsustainable system.
Yet impositions like the above which goes against culture will naturally meet stiff resistance. And unintended consequences will likely be the ensuing order—perhaps the informal economy might resort to trading based on foreign cash currencies or local community currencies could emerge (like in some parts of the US) or even trading could be done in metallic coins or that such laws will simply be ignored or not complied with or that corruption will only swell. There are many variations that could arise in response to such repressive law.