Collapsing commodities prices, erratic market turmoil and the bursting of Chinese bubbles are leading to a crisis in confidence in the economic system across the globe. The long-expected crisis to which the global financial and systemic crisis in 2008 may have been a mere prelude may be upon us.
Governments have no appetite for further bailouts. The EU states have passed legislation which will make the banks or rather unfortunate and unsuspecting depositors liable for the bank’s lending and speculative profligacy.
It is claimed that this is to “protect” the taxpayer. In reality it will likely lead to bail-ins – the confiscation of deposits. It is likely that that in a crisis within the banking system this bail-in mechanism would be imposed on an impromptu “bank holiday” followed by limits on cash withdrawals as were applied in Cyprus and more recently to depositors in Greece.
With interest rates now near zero, rates cannot be slashed any further. Unless of course, further “unconventional” weaponry are deployed upon the citizens to encourage them to spend. Further QE and QE$ is likely. Another option is negative rates – where depositors are charged by banks to hold their money. Both constitute weapons of financial and monetary repression in the deepening “war on cash.”
Bail-ins, withdrawal limits and negative interest rates would provoke a wave of withdrawals, further undermining the banking system – as was seen in Greece.
Hence, the deep concern when the Financial Times recently proposed abolishing cash altogether.
In a piece entitled “The Case for Retiring Another ‘Barbarous Relic” the FT laments the existence of cash. In the view of the editorial, cash limits the capacity of omniscient central banks to bully savers into parting with the fruits of their own labour to “stimulate” debt laden economies.
“The worry is that people will change their deposits for cash if a central bank moves rates into negative territory.”
Bill Bonner from Bonner and Partners has written an excellent piece on what the proposed ban on cash fully implies. He explains how such a move could have Orwellian consequences. The central bank, not to mention individual accounts, he writes, “will have you completely under their control”.
“You will buy when and what they want you to buy. You will be forced to keep your money in a bank – a bank controlled, of course, by the feds. You will say that you have ‘cash in the bank,’ but it won’t be true. All you will have is a credit against the bank. (Bank deposits are nothing more than IOUs from your bank to you.)”
“You will be completely surrounded. If the feds want to force you to spend… or invest… your money, they will simply impose a ‘negative interest rate.’ They will do this by simply imposing a fee, or tax, on deposits greater than the interest rate you receive on your savings.”
During a financial crisis following a ban on cash Bonner writes:
“You will be locked into a bank account with a bankrupt institution. And the feds and their bank cronies will tell you when and how you can have access to your own money.”
The current drive towards a cashless society shows the importance of being diversified and not having all your savings and assets within the vulnerable financial and banking system.
Full article: Cash Withdrawal Limits and “Bank Holidays” Coming? (Gold Core)