The war on cash heated up this week when a former Obama economic adviser/ex-Treasury secretary floated the idea of eliminating the $100 bill.
Lawrence Summers called for death to the Benjamins in a post on his Washington Post blog titled It’s Time to Kill the $100 Bill. The post announced the release of a paper by Harvard’s Mossavar Rahmani Center for Business and Government senior Fellow Peter Sands arguing that governments should stop issuing high-denomination currency such as 500 euro notes and $100 bills. The paper even proposed withdrawing such currency them from circulation.
Cash warriors always publicly center their arguments on the need to limit cash as a way to fight drug crime, terrorism, and tax fraud. This was exactly how Summers framed the argument in his blog post:
Sands’ extensive analysis is totally convincing on the linkage between high denomination notes and crime. He is surely right that illicit activities are facilitated when a million dollars weighs 2.2 pounds as with the 500 euro note rather than more than 50 pounds as would be the case if the $20 bill was the high denomination note. And he is equally correct in arguing that technology is obviating whatever need there may ever have been for high denomination notes in legal commerce…I’d guess the idea of removing existing notes is a step too far. But a moratorium on printing new high denomination notes would make the world a better place.”
As the Wall Street Journal points out, this isn’t a new idea. In 1986, New York Mayor Edward Koch urged President Reagan to eliminate the $100 bill as a way of hindering drug traffickers.
As you can see, when pundits talk about the war on cash, they almost always focus on crime prevention. But government policy-makers and central bankers have other reasons for wanting to eliminate currency. It seems highly unlikely that it’s just a coincidence all of this talk about abolishing the $100 bill is happening at the same time central bankers are lurching into the realm of negative interest rates.
Japan recently took its rates into negative territory. Just weeks later, the Swedish central bank dropped its rate to negative 0.5%. And as we reported recently, negative rates could be right around the corner in the US as well.
When banks implement negative rates, they literally charge customers to hold their money. You’re not likely to save money in the bank if it’s costing you to do so. Central planners believe this will motivate you to spend, thus stimulating the economy. But in order for this scheme to work, it has to be impossible for you to simply stuff currency under your mattress. That’s what the war on cash is really all about. After parroting the usual reasoning relating to crime prevention, the Wall Street Journal actually revealed the truth about the war on cash:
Many economists believe the ability of central banks to implement negative-interest-rate policies is hampered by the ability to hold cash. Even in places like Switzerland, where rates have gone negative on government bonds, banks don’t pass on negative rates to retail deposits for fear depositors will withdraw their cash. That limits the effectiveness of lowering rates below zero. Yet rates can go somewhat negative because holding and safeguarding large amounts of currency is an expensive undertaking. The more expensive it is to hold cash, the further negative rates can go and the easier negative rates are to pass on to corporations and consumers. Eliminating high-value currency would increase the cost and difficulty of hoarding cash.”
The simple fact is government officials and central bankers yearn for the abolition of cash because it means more control over you.
So, what can you do keep from becoming a victim in the war on cash?
Gold historically serves as an excellent way to store and preserve wealth, especially in times of economic turmoil. When you see negative rates, it’s a sure sign the economy is in a downward spiral, but they are a positive for gold. When you invest in precious metals, you don’t have to worry about trying to stuff bundles of $1 bills under your mattress or in your microwave in order to save money.
When you see ideas like eliminating the $100 bill floated, it’s easy to write them off as nothing more than far-fetched policy discussions. But it wasn’t long ago negative interest rates were considered an “impossibility.” Today’s crazy ideas often become tomorrow’s reality.
Reprinted from SchiffGold.com.