The New York Times editorial board took a side yesterday. They want to ban big denomination US dollar bills. More and more public figures all around the world are firing salvos like this in the war on cash. Meanwhile, it seems Greece was host to an experiment.
The Greek government provided tax incentives to those who spent a certain proportion of their income using cards and transfers instead of cold hard cash. Consider this move the Sudetenland of the war on cash – a non-violent strategic move to test the waters and gain ground.
The problem is, not enough Greek businesses actually have non-cash facilities. Less than half according to a Greek newspaper. And so the effort seems to have failed. People just kept using physical euros. Nobody at the political level noticed the irony of providing a tax incentive to reduce tax evasion.
The Greek resistance in the war on cash poses an odd question. What if people just keep using cash? The politicians, central bankers and academics can huff and puff all they like. And you can spend your time huffing and puffing back if you like too. But in the end it’s simply a matter of usage. If cash is accepted as a medium of exchange, it is one.
The Swiss took this idea to an intriguing level. Usage of the 1,000 Swiss franc note increased 17% last year as the Swiss National Bank moved interest rates negative. The Swiss know something is afoot. And after their national bank’s surprise currency peg moves twice last year, they’re being proactive about protecting themselves.
The war on cash is escalating. And so far the pro-cash movement is proving resilient. But don’t get your hopes up says Tim Price. The war on cash is a war on you, whether you like it or not. You can’t just ignore it like a Greek. Be Swiss instead.
Why the government really hates cash
Why do governments hate cash so much? The reasons given by policy makers and commentators are the obvious ones. Black market dealers, drug dealers and tax evaders use cash. Nobody else does. Therefore, banning it makes it harder for those people to operate.
An article in the German newspaper Bild explained this is utter rubbish. Thieves love digital money. Scammers can do far better over the internet. And the black market thrives on websites. The Bild article pointed out that even the “experts” on all this say banning cash won’t achieve what the government says. So what’s really going on?
Dan and the other Nick pondered on the war on cash in the Capital & Conflict podcast. Dan reckons the sudden emergence of the topic is due to problems in European banks. If people can’t withdraw their money out of the banking system, it’s significantly less likely for the banking system as a whole to run into trouble. You can’t move your money out, just between banks. It’s a containment strategy. One that The Fleet Street Letter editor Charlie Morris believes is secretly at the centre of the Brexit debate.
The flaw in the governments’ plans is moving your money out internationally. Which is why the war on cash has to be international too. Have you noticed how policy makers all over the world are taking up the fight at the same time?
For a guide on how to move your money out of a country, check out this innovative technique. The Chinese government has imposed a $50,000 a year limit on its citizens. So a Chinese man is planning on suing himself from the US and losing on purpose. The $3.5 million dollar legal settlement is really just about getting his money out of China. The American law firm hired to sort out the court case described the bizarre ordeal on its blog. The case had to look legit, so arbitration between the parties had to be discarded.
I think there’s a simpler reason for the war on cash. Policy makers are getting you ready for negative interest rates. Soon you’ll have to pay for your deposits. So you might as well go out and spend them instead, stimulating the economy and so on.
That sounds outrageous. But I’m currently paying $5 a month to have a current account in Australia because I don’t deposit money into it. That’s not unlike negative rates. So it’s not as absurd as you might think.
Category: Economics