We’ve written and shared multiple articles on the topic of the War on Cash over the past couple of years. Here’s a bunch of them if you need some background:
This battle against cash has certainly heated up over the past couple of weeks.
First the Indian government brought out the “big guns” with the sudden, secretive and profoundly hurtful move to remove from circulation all 500 and 1000 rupee notes. It gave holders of these notes just a short window of time to deposit them into a bank account or spend them at petrol stations, hospitals.
The Reserve Bank of India posted this notice on November 8:
Government of India vide their Notification no. 2652 dated November 8, 2016 have withdrawn the Legal Tender status of ₹ 500 and ₹ 1,000 denominations of banknotes of the Mahatma Gandhi Series issued by the Reserve Bank of India till November 8, 2016.
This is necessitated to tackle counterfeiting Indian banknotes, to effectively nullify black money hoarded in cash and curb funding of terrorism with fake notes.
Starting from November 10, 2016, members of public/corporates, business firms, societies, trusts, etc., holding these notes can tender them at any office of the Reserve Bank or any bank branch and obtain value thereof by credit into their respective bank accounts.
So Indian central planners explained this as a means to weed out corruption and counterfeit cash, and remove the “black money” that avoids tax from the Indian economy.
But in effect it seems to have hurt the large number of rural Indians who don’t have a bank account or even identification to open one! It has meant there is insufficient usable acceptable currency in circulation to keep the wheels of commerce turning.
Something like 60% of trucks are out of circulation as the truck drivers walk off the job due to insufficient cash to operate.
We posted this article earlier which considers what the implications might be once food transport and therefore food availability is impacted. It may not be pretty.
Securities lawyer and market analyst Avery Goodman believes the Indian governments move will diminish faith in the rupee and build support for gold.
“India Delegitimizes Rupee, Lighting Fire Under Long-Term Gold Demand”
“In its impatience, the Indian government will succeed in imploding the population’s faith in the Indian rupee. Historically, this type of capricious behavior is the very thing that causes people to lose faith in their government. A lot of Indians keep their savings in the form of gold, rather than in banks or even in cash, because they don’t have faith in the rupee. This demonitisation scheme has validated that lack of faith. Those who kept their money in the form of cash are now hurting. Those who kept it in the form of gold and silver coins are sitting pretty.
In a country that loves gold, in the first place, PM Modi has just lit a new fire under long term demand for the pretty yellow metal. Reports are that demand is now skyrocketing in the immediate aftermath. The sudden spurt will level off in time, but it is merely a beginning. In the long term, the Indian currency is now delegitimized. The general population of India has lost whatever little faith it ever had in the rupee. A higher percentage of people’s wealth will, henceforth, be stored in gold or silver than ever before. It will do no good for the Indian government to continue or increase the persecution of importers. The precious metals demand will be met by smuggling.”
It is rumoured that the Indian government may make it more difficult to buy gold as well.
Institutional Investment advisor, Jayant Bhandari believes the worries over these rumours may be a factor in lowering the gold price currently.
However like Goodman he believes in the longer run this will have no impact as the Indian appetite for gold is so great they will find ways to get it no matter what the government does.
Check out the very interesting interview with him below.
Jayant Bhandari – India, Currency, Catastrophe! ! !
Then just days after the Indian announcement, and much closer to home, Citibank in Australia announced they would not be accepting cash at some branches. They haven’t (yet) said they are going completely cashless but it certainly seems to be a rather large step in that direction.
Then according to Bloomberg a UBS analyst said:
‘Australia should follow India’s lead and scrap its biggest bank notes…”
‘“Removing large denomination notes in Australia would be good for the economy and good for the banks,” UBS analyst Jonathan Mott said in a note to clients on Monday. Benefits would include reduced crime and welfare fraud, increased tax revenue and a “spike” in bank deposits, he said.’
…‘The European Central Bank in February said it was considering withdrawing 500-euro notes because of an “increased conviction in world public opinion” such high-value notes are used for criminal purposes.’
This in fact is the argument used everywhere. That it is only criminals and tax avoiders that use cash.
Therefore if there is no cash or at least no large notes, then the crims are suddenly going to show up at the bank and deposit the cash instead.
If we were a criminal we’d imagine we’d come up with any other possible means first! Like using smaller notes if larger notes were outlawed. Then looking at other means of payment or trade if cash were abolished.
Where there is a will there is way!
Of course the real reasons for going cashless is not that it is more efficient, cheaper, increases bank deposits, or makes it harder for drug dealers.
What are they then?
The war on cash is being waged because it allows the government to do a number of things:
Going cashless might seem user friendly. Hey, if it were left up to the free market it’s also likely that cashless payment systems would be the norm.
The problem is when the government controls money and gives you no other options. So beware of the “simplicity” and “ease of use” of only having credit cards or Apple pay. It is on the horizon.
There appears to be an undeniable march towards a cashless economy here in New Zealand too. Today’s kids are certainly being trained for it.
Did you have a piggy bank as a kid? Well todays kids no longer will.
ASB now have a “cashless” piggy bank called Clever Kash that works with a smartphone app. See here.
Play Monopoly as a kid?
Nowadays you don’t have the classic Monopoly money but instead a credit card and the banker has a little swipe machine that debit or credits your card.
We’ve seen news items here showing that it is criminals that use cash too.
And that there has been a rise in financial transactions linked to terrorists. As we noted back in February:
Well, here’s a reason why we’re likely to see more of a clamp down on cash here in New Zealand as well then. A headline this week read:
Financial transactions thought to be linked to terrorism have almost doubled in the past two years.
“Information released by the police under the Official Information Act showed a rise from 21 cases in 2014 to 40 in 2015 and the latest figure was 24.”
Bernard Hickey has also chimed in suggesting:
“Removing cash and adopting a blockchain-type system for transactions and savings accounts that is set up and hosted by the central bank to combat deflation, tax evasion and crime”.
“A cashless society could help us combat crime and tax avoidance by making it much harder to trade illegally and in an untraced way. It would also avoid the problem of cash hoarding if interest rates were ever cut to 0%, or even negative rates. It would make it much easier to have negative interest rates that gave the Reserve Bank the power to stimulate the economy by charging savers to look after their money. A move to a digital currency could also allow us to do without banks for transactions and save an awful lot of money in processing and conversion fees.”
Don’t know about you but we really don’t like the idea of making it easier for the central planners to implement negative interest rates and charge us for holding our money!
So are these all straws in the wind for end of cash perhaps?
Instead of hoarding cash, maybe hoard some gold or silver instead? Currently in New Zealand purchases of gold and silver bullion allow a large degree of privacy. There is no requirement for sellers to collect your details and record or report any transactions.
However this is unlikely to last for ever – it is likely to change in 2017.
So if privacy matters then don’t wait too long before you buy.