Savers beware — central banks and governments have declared war on cash

WILL BANKNOTES and coins soon disappear? Technology and convenience support this trend, but monetary policy and fiscal coercion play a less innocuous role. A ‘war on cash’ is underway that aims at enforcing negative interest rates on private savings, expropriating savers for the sake of a demand-driven stimulus, writes World Review expert Michael Wohlgemuth. This summer we have become used to televised scenes of Greek citizens lining up at ATM machines trying to get their maximum daily allotment of 60 euros, and pensioners desperate to receive their monthly livelihood – in cash. What is it that makes cash or currency – banknotes and coins that each individual can hoard, hide and freely exchange for the goods and services of others – so valuable? Are there not much more modern and efficient electronic transfer methods? In the Greek case, the answer is rather straightforward. People wanted to get as many euro banknotes in their pockets or under their mattresses before (a) the Greek government confiscated wealth held in Greek banks; (b) those banks officially declared insolvency, triggering a bail-in from account holder under new European Union rules, or (c) their savings were turned into devalued drachma or government IOUs overnight. Leaked reports on former Finance Minister Yanis Varoufakis’s plans to use a combination of all three techniques in a single stroke overnight show that the Greeks’ hunger for cash was not at all irrational. Even leaving aside the special case of Greece, the preference for holding and using cash has spurred a serious debate in academic and political circles. By law, in Germany and the rest of the eurozone, cash is still regarded as the only legal tender and indisputably accepted means of exchange. Meanwhile, prominent economists and politicians in Europe and the United States have declared a ‘war on cash.’ Among the economists, the most influential critics of cash are former US Treasury Secretary Larry Summers, Citigroup chief economist Willem Buiter, former International Monetary Fund chief economist Kenneth Rogoff, and Peter Bofinger, a member of the economic advisory board to the German government. Among the politicians are Norbert Walter-Borjans, the finance minister of North Rhine Westphalia, and Sweden’s Finance Minister Magdalena Andersson. This is not just an academic debate or political daydream. In some countries, the use of cash is already strictly limited. In Greece, cash payments above 500 euros are not allowed; in Italy, the limit is 1,000 euros; France will also introduce a 1,000 euro limit this year. At the European Central Bank, there are plans to stop issuing 500 euro banknotes. In Denmark, there is wide support for a law that would gradually ban all cash transactions, starting by allowing shops to go completely cash free. There are three main arguments against the cash economy: (1) using and holding cash is inconvenient; (2) cash makes it easier to hide illegal transactions; and (3) cash limits the ability of central banks to impose negative interest rates. The first argument is innocent enough. Electronic money is convenient and its use in Europe now goes far beyond e-commerce transactions. In Stockholm, you can pay a busker with a credit card. In Copenhagen, people buy their espresso with smartphones. The situation is very different in other countries, however. A recent study by the Bank of International Settlements on payment behavior in Germany shows that cash is still the number one means of payment at the point of sale, used for almost 80 per cent of all transactions. For a more in-depth look at this subject with scenarios looking to future outcomes, go to our sister site: Geopolitical Information Service. Sign in for 3 Free Reports or Subscribe.

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