Investing in Cash: The First Step toward 100 Percent-Reserve Banking

A new survey by American Express reveals that 29 percent of Americans keep at least some of their “savings” in cash.  Overall 53 percent of cash holders stash their cash in a domestic hiding place.  Surprisingly, 67 percent of dollar bill and coin hoarders among the millennial generation secrete cash around their domicile.  A 2012 Marist College survey indicated the most preferred places in (or under) which to hide cash.  In order of popularity, they are:  the freezer; a sock drawer;  the mattress; and a cookie jar. Cash hoarding surged during the financial crisis in 2008 and an upward trend seems to have continued in recent years as the installation of domestic safes has increased.

Personal finance experts, of course, vehemently oppose such a trend and point to “the risk of theft or loss due to fire or some sort of unforeseen disaster.”  And there are horror stories aplenty to back up such a position: one Israeli woman threw out her mother’s old mattress, only later to discover that it was where she had hidden her life savings estimated at $1 million.  Of course, what is left out is that such minuscule risk of  loss of domestic cash must be balanced against the risk that the next crisis generated by our crisis-prone, central bank-dominated financial system will result in a collapse of the fractional-reserve banks and the partial or complete limitation of the public’s right to withdraw cash or transfer funds from  its bank deposits for an indefinite period of time.

Fortunately, there is the prospect of a  market solution that would enable the would-be cash holder to avoid both risks.  Should the negative interest-rate policies of central banks persist and intensify, the movement toward cash hoarding may broaden and pick up its pace, eventually turning into a stampede. At that point, entrepreneurs would probably find it profitable to invest in genuine depository institutions which would charge a fee to both store customers’ cash and insure it against risk of loss by fire, theft, etc. (Right now,  banks offer  to store your cash and other valuables and documents in rented safe deposit boxes but the contents of these boxes are not insured against loss by fire or theft although you can contract with a private broker to insure them.)  Although current banking law would probably not permit cash stored at nonbank depository institutions to be transferred as payments to  third parties by draft,  the camel’s nose of 100 percent reserve-banking would already be under the tent, with full entrance awaiting banking deregulation.