The War Against Cash

This is an excerpt from In Gold We Trust 2015, by Incrementum Liechtenstein:

As a result of global low interest rate policies, traditional savings vehicles, especially savings accounts, have become less and less attractive. Since they earn practically no interest anymore, there is a growing incentive to withdraw money from bank accounts and hoard it. In recent months especially, another facet of financial repression is increasingly gaining momentum: numerous (supposed) star economists, including the likes of Paul Krugman and Larry Summers, are currently overtly propagating the opinion that too much is being saved and not enough is being invested. In order to compensate for this imbalance, interest rates should be pushed into negative territory. According to Keynesian logic, this will supposedly boost consumption and provide urgently needed stimulus to the economy.

In order to be able to implement negative interest rates109, Larry Summers, Harvard economist and former US treasury secretary, bluntly demanded the global abolition of all cash currency at an IMF research conference.110 His presentation gave the impression of being a declaration of war against cash. The primary goal according to Summers should be to enable governments and banks to push interest rates below the level of zero. Consequently, every saver would then have to pay a fee for the warehousing of his money. In order to prevent a run on banks, cash would have to be completely abolished.

Peter Bofinger, German economist and economic advisor to Germany’s government, also regards coins and banknotes as an anachronism. He too categorizes cash as potentially criminal and points to the possibility of draining funds from the drug market and illicit employment. However, this doesn’t appear to be the main argument against cash currency. The journalist Roland Tichy summarizes the main goal of a cashless society as follows: “The main goal is the manipulation of interest rates and consumers, in order to attain specific goals of economic policy.” Mr. Bofinger admits this as well. He explains: “If there is no more cash, the zero interest boundary no longer exists, and nothing stands in the way of negative interest rates anymore”. It would make sense if the euro area, the UK and Switzerland were to abolish cash concurrently, according to Bofinger.

With that, Bofinger joins the ranks of an ever-longer list of – primarily Keynesian – economists who are making similar arguments. Kenneth Rogoff and Willem Buiter, chief economist of Citigroup, are also pleading in favor of the abolition of cash. Without cash, it would no longer be possible to escape negative interest rates, and one would finally be able to “boost” the economy. Even though the idea is controversial according to Buiter, and there are a number of drawbacks (resistance of the population, high rates of cash usage among poor and elderly people, loss of seignorage income of central banks and governments, loss of privacy and security risks due to cyber-attacks), these disadvantages are “negligible.”

However, the criticism of cash has an additional background: due to tiny minimum reserve requirements, banks are in a permanent state of “latent illiquidity”. Deposits are the base of the fractional and massively leveraged credit pyramid. A bank run due to a loss of confidence would quickly lead to a collapse of this credit pyramid. Banning cash currency is therefore the only effective tool the “junta of paper money jugglers” has at its disposal to block all escape routes from the paper money system for the citizenry. The emergency exits would thus be locked down.

Moreover, in a cash-less society, assets could be more easily monitored, controlled, taxed and if occasion demands, expropriated. This final factor is seen as ever more essential for governments which are buried in debt up their eyebrows. Restriction of cash holdings thus represents a major pillar of financial repression and moreover the last hurdle prior to the possible introduction of negative interest rates.

Numerous examples show that the path toward the abolition of cash is already pursued:

  • In Italy, Spain, and Greece, the possession and use of cash has already been significantly restricted. Since 2011, it is illegal in Greece to perform cash payments exceeding EUR 1,500. In Italy, this limit stands at EUR 1,000 and in Spain at EUR 2,500.
  • Denmark wants to abolish the legal obligation to accept cash.
  • In Sweden, which was incidentally the first European country to issue banknotes118, cash has almost disappeared from everyday life. In 2012, only 2.7% of all transactions in Sweden were still performed with cash, vs. 9.8% in the euro zone and 7.2% in the US. The use of cash is now so frowned upon, that the following rule of thumb is in force: “If you have to pay in cash, something is wrong”.
  • In France, legal cash payments will be limited to EUR 1,000 from September 2015. Moreover, currency exchange offices are obliged to store the personal data of anyone engaging in foreign exchange transactions exceeding EUR 1,000. Purchases of gold also have to be reported to the authorities from now on, as well as gold shipments within the country, which curiously have to be reported to customs. As one might expect, the measures are justified by invoking the “war on terror”.
  • In Germany, Bundesbank board chairman Thiele still appeared a bit stand-offish with regard to restricting the use of cash: “The Bundesbank won’t restrict the freedom of consumers to choose. This is something that would have to be done by the legislature.”

Apart from economists and governments, actors in the financial industry are of course also singing from the same hymn sheet. It is not too big a surprise that credit card company, MasterCard, found out in the course of a study on behalf of the University of Oxford that cash currency was dirty and unhealthy.120 Since 2011, there is even a “No Cash Day” (invented in Italy), which is celebrated every year in June.


The abolition of cash currency and the associated implementation of negative interest rates represents a “consistent continuation of misguided monetary policy”. It would pave the way for economic totalitarianism of an Orwellian character. Alternatives like gold and crypto-currencies could of course benefit from this, as long as they manage to escape “regulation” or a ban in the framework of financial repression.

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