As history has shown us, ‘justice and equality’ has been used time and time again as a moral smokescreen for government-mandated wealth transfers.
In the first part of our series on the war on cash, we reported how the Indian government abruptly declared the two largest denominations the 500 and 1,000 rupee notes to be illegal tender overnight. We also quoted Larry Summers, former director of the National Economic Council, who has strongly called for world governments to stop issuing notes worth more than $50 or $100. While the abruptness of the Indian methodology has been widely criticized, Summers has recently repeated that while the implementation by the Indian government was flawed, the decision was still ultimately sound. As he writes in his personal blog:
On balance, nothing in the Indian experience gives us pause in recommending that no more large notes be created in the United States, Europe, and around the world.
Now, the Indian government is proposing amendments to the income tax law to impose penalties on citizens who have ‘unexplained credit, investment, cash and other assets’. The penalties being recommended are in the range of 50% to 85% of such undisclosed income. To recap, the government first made the largest denominations notes illegal tender and then immediately after begin looking to impose penalties on citizens who are assessed to have ‘unexplained’ sources of cash. Of course, it is the government who will be doing such assessments, and thus we know we can rely on them to be 100% fair and transparent, plus they have assured citizens that ‘money from the scheme would be used for projects in irrigation, housing, toilets, infrastructure, primary education, primary health and livelihood so that there is justice and equality’.
We leave it to our readers to draw their own conclusions as to whether this latest justification holds any water.
And what about our Western neighbors all the way on the other side of the globe? The war on cash is definitely in full swing over there with Citibank recently announcing that it is removing cash from its Australian bank branches due to ‘falling demand from customers’.
Analysts from Swiss banking giant UBS have also called for the Australian $100 note to be scrapped, a call that has been also supported by HSBC. As always, the justification for such a move is to ‘increase transparency in the economy’, which is basically doublespeak for ‘let all your purchases and dealings be completely transparent to the government’; for your own good, of course. As UBS says in its report:
We believe removing large denomination notes in Australia would be good for the economy and good for the banks.
Yes, UBS openly admits that the push toward a cashless society is entirely self-serving; in that same report they say that if all the A$100 notes were deposited into accounts at the lenders, household deposits would rise by about 4%. That would likely be enough to fill the big banks’ regulatory-mandated net stable funding ratios and reduce reliance on offshore funding.
Make no mistake, a cashless society would be great for banks. First, it would prevent the threat of bank runs, which can devastate a bank, as in the case of Greece or Zimbabwe. Second, as UBS mentioned above, bank deposits would rise, and of course, so would their profits. The government also benefits because everybody’s savings would be in the banks, and the government has full regulatory control of the banks.
A cashless society moves power from the citizens to the government and the banks. Bank runs are in fact a great ‘check’ that depositors can exert on the banks to ensure proper financial discipline. Without the threat of such runs, banks have more freedom to undertake risky loans and high leverage. Cash is also one of the very few remaining options for financial privacy as it doesn’t create a permanent and accessible record of your every purchase and transaction.
With that being said, with the vast majority of currencies in the world today being fiat currencies, even holding legal cash itself is not entirely safe; the government can arbitrarily impose penalties and regulations on it. Hence, diversification into commodities which are long-term stores of value, such as gold, is something every savvy investor should be looking into.
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