LAWRIE WILLIAMS: Will the war on cash morph into a war on gold and diamonds
Readers will no doubt be aware of a number of economists, central bankers and politicians trying to push the world towards a cashless society, and the first victims of this are high denomination banknotes. The theory behind this, as central banks run out of stimulatory options as they head increasingly towards zero interest rate policies (ZIRP) and even negative interest rate policies (NIRP), is to try and re-stimulate spending and thus economic growth – so far unsuccessfully. If savings are to be penalised through ZIRP and NIRP, coupled with attempts towards increasing inflation, the theory is that people will spend rather than save and thus help stimulate consumer demand and the economy.
Withdrawing high denomination banknotes like the €500 note and the CHF1,000 note, as is being proposed, would just make it more difficult for the save to compensate by storing large amounts of cash rather than see their money held in the banking system eroded by NIRP. Indeed the €500 note is already being withdrawn with no new ones being printed, although, for the moment, existing notes will remain legal tender.
Of course controlling citizens’ ease in hoarding large sums of cash is not the official reasoning behind such a policy. Government will tell you it’s a weapon to clamp down on money laundering and cross-border money smuggling by terrorists, drug dealers, tax evaders, illegal arms dealers and all sorts of other criminals wishing to stash their ill-gotten gains in less invasive and less-unfriendly governmental and banking environments. Even the US$100 bill might be in danger if this idea is to gain traction globally. Ultimately the central banker theorists would like to turn us into a cashless society where all money is stored electronically and thus open to government theft - 'for the overall good of the economy'. of course.
If we carry this logic to its conclusion though, there are other small high value options for moving and storing wealth. Two which have been mentioned are gold bullion (coins, bars etc.) and diamonds. There is a logic for high wealth individuals, if they feel that their cash holdings are under threat, for transferring this wealth into gold and diamonds – the former being more easily negotiable, but could this be equally vulnerable? There is obviously precedent here with the U.S.’s gold confiscation by Presidential decree back in April 1933 and subsequent gold revaluation. Could this happen again? The answer is probably yes, although would be a much more complicated exercise this time around. Gold held in ETFs would be an easy target, but gold held in home safes, safety deposit boxes and squirreled away into various accounts specifically designed to avoid confiscation could be more of a problem, although perhaps not an insurmountable one if individuals were to be threatened with draconian punishment levels were they to avoid handing their gold over.
I would commend readers to try and get hold of a copy of Grant Williams’ latest Things that Make you go Hmmm… newsletter (www.ttmygh.com ) where he goes into the cash war element of the above in some detail. He likens the economists and central bankers promoting the cash war to the fortune tellers condemned to a specific punishment in Dante’s Inferno. They were condemned forever to walk forwards with their heads on backwards, thus unable to see what lies ahead. As he says later on in his amusing letter:
“Today we call many such peddlers of confident but usually erroneous predictions about the future 'economisti' (economists) or 'banchieri centrali' (central bankers) and the relationship these flawed prognosticators of today have with modern society is every bit as chequered as that enjoyed by the fortune-tellers of Dante's time—particularly as, not only have many of them been walking forwards with their heads on backwards, but they have also taken to talking from bodily orifices which suggest that, in addition to being backwards, they are also upside-down.”
But if cash is gradually to be phased out – perhaps all except the smallest denomination notes as there’s a sector of the population which the digital economy has totally passed by – initially gold could benefit tremendously as people look to move their wealth into it and perhaps other forms of wealth preservation. It would be some time before any confiscation decree might be made, and then it may take even more time to implement. Maybe one could switch gold holdings into silver, although this would be somewhat akin to switching €500 banknotes into €10 ones, not exactly ideal for personal storage in terms of volume and thus correspondingly far more expensive to store in commercial vaults.
Suffice it to say that even more stupid legislation than to do away with cash – or at least high denomination notes – has been implemented in the past, but the idea of the war on cash does seem to be gaining momentum among the ‘economistas’ and the ‘banchieri centrali’. This would be particularly so to ‘protect the economy’ in the case of the introduction of negative interest rates to an even greater extent than this has taken place already. There is little evidence that QE and ZIRP or NIRP has stimulated the economy apart from in helping those invested in stocks and property – in other words the wealthier sector. Central Bankers obviously need rebooting and re-programming if they are to salvage the global financial system and a war on cash, and other transferable forms of wealth, is almost certainly not the answer and might throw the system into an even more chaotic situation than it finds itself in at present.
19 Sep 2016