Cash has never been a popular asset with the totalitarian set. It’s difficult if not impossible to trace. Cash makes it possible to do business “off the books.”
For decades, with the US spurring the effort, governments around the globe have engaged in a War on Cash. The original justification for this war was to fight racketeering. The War on Cash then morphed into the War on Drugs, the War on Money Laundering, and subsequently, the War on Terror.
The Call to Abolish Cash Altogether
Now some economists are calling for the outright abolition of cash, but for a different reason. In his new book, The Curse of Cash, Professor Kenneth Rogoff of Harvard University argues that we need to rid the world of cash so the world’s central banks can more easily “go negative” (i.e. impose negative interest rates on savers).
By combining a cashless world and negative interest rates, governments would effectively flush out any hidden or saved wealth. You can’t save money, because negative interest rates mean you’re paying the bank. You can’t withdraw it or keep it under a mattress, because that’s impossible when there is no such thing as cash.
A cashless society means your bank – and the US government – controls every penny you own and every purchase you make. They can freeze your account at will, leaving you destitute with just a few taps on a keyboard.
As Ron Paul wrote in 1991, “The cashless society is the IRS’s dream: total knowledge of, and control over, the finances of every single American.”
All you can do is spend… and that’s Rogoff’s point. Savers have no choice but to invest their hard-earned money in riskier stocks or bonds, or spend it, thus (supposedly) spurring economic growth.
Certainly Not a New Idea
This is hardly a new idea. In 1999, author David Warwick wrote Ending Cash, which proposed the US government abolish cash to rid society of crime and tax evasion. The millions of Americans who don’t have bank accounts or credit cards would “have to adjust.”
For those worried about privacy, Warwick claimed a cashless system could be developed that would be “even more confidential than Social Security and Census records.” You probably already know that these systems are anything but well protected.
A Hard Sell?
Of course it would be hard to convince Americans to ditch cash all at once. But the Wise Ones that guide our society toward a Better Tomorrow have long considered ways to do it gradually. For instance, in 1989, former Treasury Secretary Donald Regan suggested that all $50s and $100s be recalled and replaced with a new currency. The changeover would occur over a 10-day period, and the old money would no longer be legal tender after that time. Regan recommended that anyone turning in more than $1,000 be required to prove that all taxes on the cash had been paid, and that it had not been earned illegally. Otherwise, the funds would be impounded, and their former owner could face criminal charges.
That didn’t happen in the US – not yet anyway. But two months ago, a very similar scenario unfolded half a world away from America, in India.
Cash Bans Around the World
Nearly three months ago, the Indian government issued a shock announcement banning the country’s largest-denomination bills – the 500 rupee note (then worth about US$7.50) and the 1,000 rupee note. If you had these bills in your possession, you had until December 30 to take them to a bank and either deposit them in an account or exchange them for smaller notes.
Oh, and get this… if you wanted to exchange more than 250,000 rupees ($3,700), you had to provide proof of how you got it and that you had paid tax on the income. If you didn’t have a satisfactory explanation, you’d face a penalty of 200% of the supposedly unpaid tax.
In other countries, the cashless society is close to a reality. In Sweden, cash transactions accounted for just 2% of the economy in 2015. Over half of Sweden’s banks no longer hold cash or take cash deposits. Denmark, Thailand, and South Korea follow closely behind.
A Bank of England economist has called for the abolition of cash, and most European countries already restrict large cash transactions. Italy and France each banned cash transactions over €1,000, though Italy later raised their limit to €3,000. Spain has banned cash transactions exceeding €2,500. South Korea plans to end the circulation of coins and has publicly announced a movement toward a cashless society. Similar restrictions are in place in Belgium, Bulgaria, Greece, Mexico, Russia, Uruguay, and other countries.
US Restrictions
In the US, cash transaction limits don’t yet exist, but de facto restrictions already are enforced. I’ve received reports from several clients about interrogations by banks if they withdraw more than a few thousand dollars in cash from their accounts. Depositing or withdrawing more than $10,000 in cash from an account requires that banks, as well as other financial institutions, file a Currency Transaction Report with the IRS. “Structuring” one cash transaction into multiple transactions to avoid this requirement is a crime. And if the circumstances surrounding a transaction above $5,000 are “suspicious,” financial institutions must file a Suspicious Activity Report.
Federal, state, and local law enforcement agencies consider cash holdings inherently suspicious. Under the Alice-in-Wonderland legal process of civil forfeiture, they can seize your cash if they believe that it’s somehow connected to a crime. That’s easy, since more than 90% of circulating cash contains tiny concentrations of narcotics residues, primarily cocaine. All police need to do is bring in a drug-sniffing dog to inspect the cash. If the dog “alerts” to the presence of drug residues, police seize the cash. Under civil forfeiture rules, it’s up to you to prove that the cash has a legitimate origin.
If the government decides to restrict cash transactions or outlaw cash altogether, how would they do it? Efforts along this line are already well under way. Many airlines accept only credit or debit cards for inflight purchases. Louisiana forbids cash for some secondhand sales of scrap metal. A proposal in Wisconsin would ban cash payments for treatment at pain clinics.
In other words, the momentum toward a cashless society is accelerating. But it’s outrageous to assume that the population will passively accept outright confiscation of our assets via negative interest rates or a ban on cash.
Alternative Stores of Wealth
Instead, savers will turn to other stores of value. I think this is one reason real estate prices are soaring in many parts of the world. In Toronto, for instance, the price of the average house rose a stunning 19.7% in 2016. In Phoenix, where I live, prices went up10.1%. And in Berlin, prices grew by 13%.
If cash is abolished, barter will become much more popular as well. For instance, at the end of World War II, a cigarette economy developed in occupied Germany. Cash was scarce, so ordinary Germans adapted by exchanging cigarettes for food and other necessities.
Indeed, barter of all kinds flourishes when money is scarce. It will flourish even more if governments make a serious effort to abolish cash.
And of course banning cash will only encourage the growth of digital currencies such as Bitcoin.
Then there’s the classic store of value: gold. After experiencing sharp price reversals since 2011, gold rose 8.5% in 2016. If you don’t already own some gold in fully allocated form, now would be a good time to consider buying some.
