Central Banks Want To Confiscate Your Cash
They say they’re going after drug dealers and tax cheats. Don’t believe them — they’re coming after you.
By Fergus Hodgson
Dear Fellow Investor,
The war on cash has already begun.
Just recently, the European Central Bank has halted production of €500 bills (US$559), with a complete end to issuance scheduled for 2018. But that’s just the tip of the iceberg that economic central planners have in mind.
This year has seen a flurry of interest in reining in use of U.S. dollars as cash, starting with an end to the $100 bill. The stated reason, offered by Harvard economist and former Treasury Secretary Lawrence Summers, is “combating criminal activity.”
To be sure, eagerness on the part of government officials and the UN Better than Cash Alliance to encircle and tax informal, unreported economic activity is a key driver. Edgar Feige, economics professor emeritus at the University of Wisconsin-Madison, estimates lost income taxes for the federal government at half a trillion dollars annually — on account of 18% - 19% of income going unreported.
Kenneth Rogoff, also of Harvard University, echoed this sentiment in a recent Wall Street Journal essay, “The Sinister Side of Cash.” Rogoff claims to be concerned about tax evasion and crime: racketeering, extortion, money laundering and human trafficking.
Perhaps he heard about the Obama administration's illegal delivery of billions in cash to Iran's terrorist-sponsoring regime? But I digress.
What makes this push against cash perplexing on the U.S. front, if implemented, is that it would impede the capacity of the U.S. dollar to remain the international reserve currency. At least one third of U.S. dollars reside in foreign countries — the majority of it in $100 bills — and many countries explicitly use U.S. dollars as their official medium of exchange.
That includes poverty-stricken countries such as Ecuador, El Salvador and Zimbabwe. Most people in such countries are unbanked, and few have ATM cards, so cash is king.
An end to the $100 bill, with the $50 bill next to go, would make the U.S. dollar less attractive to both these countries and developed trading nations. Higher transportation and storage costs of lower denominations would incentivize the use of other major currencies such as the Canadian dollar or Swiss franc. In fact, the Swiss are sticking to their guns and still have a CHF1,000 bill, worth US$1,021, which is rising in popularity.
Willingness among the enemies of cash to accept the risk to U.S.-dollar hegemony, along with the wide loss to financial privacy, points to a more sinister and long-term goal. They care about much more than just trying to tax someone's under-the-table rent or cannabis payments.
Rogoff is indicative of the anti-cash sentiment and has a book just out, The Curse of Cash. He is not shy about his overarching motive and is explicit that he wants $50 and $20 notes gone as well, to eliminate 97 percent of the value of the currency supply. But why?
It has to do, he writes, “with the ability of central banks to deal with financial crises and deep recessions.” Central banks want to be able to induce people to borrow and spend more, to “stimulate” economies out of recessions. (Be sure not to ask them what created recessions or the business cycle to begin with.)
In recent years, central banks have struggled to do that, even with interest rates at zero and tilting negative when accounting for inflation. You know what that means: They want interest rates that can go seriously into negatives, and they want the peasants to play ball.
Negative interest rates redistribute wealth from savers to borrowers and lead people to withdraw their funds. They then hold cash or protect their wealth by transferring it to alternative currencies such as bitcoin or gold, and they cannot let that happen.
The scary part is how much the anti-cash apparatchiks have thought through their plan and are bringing it to fruition, little by little.
Rogoff, for example, wants heightened prohibitions on “alternative vehicles,” because they threaten central-banking monopolies and his grand scheme. Acting on this threat, at least 10 countries have already banned bitcoin. Further, because many stubborn paupers are not as enlightened as Rogoff, they have not adopted bankcards. Not to worry; taxpayers will foot the bill and hand over bank cards in Obama-phone style, as is already happening in South Africa and Turkey.
While Rogoff and his ilk may claim to be fighting organized crime, they are in fact greasing the wheels for evermore top-down financial control. This latest push is an effort to block the exits from anyone who might dare to resist central-bank predation.
Fergus Hodgson is Gold Newsletter’s Roving Editor.
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