The War On Cash: Why Now?
- The War On Cash: Why Now?
by Charles Hugh Smith, https://mises.org/
You’ve probably read that there is a “war on cash” being waged on various fronts around the world. What exactly does a “war on cash” mean? It means governments are limiting the use of cash and a variety of official-mouthpiece economists are calling for the outright abolition of cash. Authorities are both restricting the amount of cash that can be withdrawn from banks, and limiting what can be purchased with cash.
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These limits are broadly called “capital controls.”
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Why Now?
Before we get to that, let’s distinguish between physical cash — currency and coins in your possession — and digital cash in the bank. The difference is self-evident: cash in hand cannot be confiscated by a “bail-in” (i.e., officially sanctioned theft) in which the government or bank expropriates a percentage of cash deposited in the bank. Cash in hand cannot be chipped away by negative interest rates or fees.
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Cash in the bank cannot be withdrawn in a financial emergency that shutters the banks (i.e., a bank holiday).
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When pundits suggest cash is “obsolete,” they mean physical paper money and coins, not cash in a bank. Cash in the bank is perfectly fine with the government and its well-paid yes-men (paging Mr. Rogoff and Mr. Buiter) because this cash can be expropriated by either “bail-ins” or by negative interest rates.
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Inflation and Negative Interest Rates
Mr. Buiter, for example, recently opined that the spot of bother in 2008–09 (the Global Financial Meltdown) could have been avoided if banks had only charged a 6 percent negative interest rate on cash: in effect, taking 6 percent of the depositor’s cash to force everyone to spend what cash they might have.
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Both cash in hand and cash in the bank are subject to one favored method of expropriation, inflation. Inflation — the single most cherished goal of every central bank — steals purchasing power from physical cash and digital cash alike. Inflation punishes holders of cash and benefits those with debt, as debt becomes cheaper to service.
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