The intensifying global war on cash is destined to give the government more control over your money than ever.
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Evidence that most of the world’s governments are working toward a “cashless society” has mounted over the past couple of years.
The latest government to launch a major assault in the global war on cash was India. This could foreshadow what’s to come in the United States…
This Is What a Government War on Cash Looks Like
In November, Indian Prime Minister Narendra Modi shocked his citizens by announcing a plan to ban existing 500- and 1,000-rupee notes.
These aren’t high denominations – 500 rupees is $7.37, while 1,000 rupees is $14.75. Together the two bills accounted for 86% of India’s cash in circulation.
Credit Suisse has estimated that more than 90% of consumer transactions in India are made in cash.
“We can gradually move from a less-cash society to a cashless society,” Modi said.
Modi gave his citizens until the end of 2016 to exchange the old banknotes – now no longer spendable — for new ones. But there was a shortage of the new bills. People were waiting in long lines at ATMs and bank branches, often to be disappointed as supplies of the new banknotes ran out.
And those who had a large amount of cash to exchange – 250,000 rupees (about $3,687) or more – by law had to explain why they had so much cash as well as prove they had paid the required taxes on it. If they couldn’t, they got slapped with a fine equal to 200% of the tax owed.
Still, those folks are better off than the 16 million Indians who live overseas. They had no way of exchanging their now-worthless rupee notes unless they could get back to India. Many lost the equivalent of thousands of dollars.
This sudden, unexpected strike in the war on cash has been a nightmare for the people of India.
And not only could it happen here – it’s practically inevitable…
The U.S. War on Cash Has Already Started
The United States discontinued the $10,000, $5,000, $1,000, and $500 banknotes back in 1969, leaving the $100 bill as the largest U.S. denomination.
But lately talk has ramped up about eliminating the $100 and $50 bills. This echoes sentiment in nations such as Australia, which in December announced plans to study the elimination of its $100 banknote.
Former International Monetary Fund (IMF) Chief Economist and Harvard University professor Kenneth Rogoff published a book in 2016 entitled “The Curse of Cash.” In it he promotes a plan to eliminate larger banknotes in stages. First the $100, then the $50, then the $20, leaving the $10 as the largest denomination.
In February 2016, former Treasury Secretary Larry Summers wrote a piece for the Washington Post headlined, “It’s time to kill the $100 bill.” In the article Summers calls for “a global agreement to stop issuing notes worth more than say $50 or $100.”
And in March 2015, U.S. Federal Reserve Chair Janet Yellen remarked that “cash is not a very convenient store of value” in a Q&A session following a speech on monetary policy in San Francisco.
More ominously, the Bank Secrecy Act requires U.S. banks to alert the government when a customer seeks to withdraw $10,000 or more from an account. It’s very much like what India is doing now.
Other Western democracies, such as France, Spain, and Italy, all have reduced the maximum allowed cash transactions in the past couple of years.
This requirement is a key part of the war on cash, as it both discourages large cash transactions while giving government another tool to monitor citizens’ financial activities.
Money Morning Capital Wave Strategist Shah Gilani sees such capital controls as a threat to the economic freedom of American citizens.
“That means you might not be able to get the money you want out of an ATM. You might not be able to cash a check when you have plenty of money in your account. Or worse… your bank could take your deposited cash and convert it to shares of stock in that bank,” Gilani said. “In other words, if you think you’ll always be able to get your money out of your bank, you’re wrong.”
But a key question is why governments are so keen on moving toward a cashless society. Here’s what they’ll tell you…
How Governments Will Try to Sell You on a Cashless Society
The biggest argument in favor of getting rid of cash, or even just higher denominations, is that it will curb crime. Most criminal transactions use cash because it’s anonymous, unlike credit or debit cards. Terrorists prefer cash for the same reason.
As the government war on cash heats up, officials will also emphasize how much more efficient and convenient electronic transactions are.
To be sure, many Americans rely mostly on electronic transactions now to pay bills or buy merchandise with credit and debit cards.
But Americans still like cash. Almost one out of three transactions in the U.S. is made with cash. People often prefer cash for small transactions, for person-to-person transactions, and for transactions they’d prefer to keep private.
A cashless society ensures all transactions are electronic – and thus subject to government scrutiny or even seizure. Government regulations will ensure banks promptly report any “suspicious” activity.
Another benefit for government is that virtually no transaction will escape taxation. A cashless society will put an end to the $2 trillion underground economy, creating hardships for anyone who gets paid “off the books.”
“It has long been the dream of collectivists and technocratic elites to eliminate the semi-unregulated cash economy and black markets in order to maximize taxation and to fully control markets,” says Patrick Henningsen at the Montreal-based Centre for Research on Globalization. “If the cashless society is ushered in, they will have near complete control over the lives of individual people.”
But there’s an even more sinister reason for the global war on cash…
What Governments Will Do When Cash Is History
Few government officials crave a cashless society more than central bankers. After years of near-zero interest rates and gimmicks like the bond-buying known as quantitative easing, they’ve run out of bullets.
Should the world experience another major financial downturn, the central bankers will want to implement negative interest rates. (Some central banks, such as the Bank of Japan, are already using them.)
When rates go negative, it means you have to pay the bank to keep your money there, not the other way around. To avoid losing money, people would be forced to spend it. The emptying of bank accounts into the economy would serve as a tremendous stimulus.
But the availability of cash blunts the impact of negative interest rates. People can just take their money out of the bank as cash and store it in a safe. In a cashless society, people wouldn’t have that option.
When you add it all up, the war on cash is a big victory for big government – and a big loss for liberty, freedom, and privacy.
Here’s what you can do to protect yourself…
Don’t Be a Casualty in the Global War on Cash
One thing investors should do is avoid having large deposits in banks, especially the Too Big to Fail banks.
In the war on cash, you’ll need safer strategies for your money. Such as:
- Gold and Silver: The classic safe haven of precious metals remains an ideal place to put your money as the war on cash accelerates. And while exchange-traded funds like the SPDR Gold Trust(NYSE Arca: GLD) are one way to go, investors will want to consider owning the physical variety, such as bars or coins. And those are far from the only options for buying gold and silver.
- Real Estate: Buying property may not be for everyone, but it’s a physical asset and a reliable store of value that offers a legitimate refuge from the war on cash.
- Bitcoin: Somewhat ironically, this digital asset may be the best place to store assets in a world devoid of cash. Bitcoin is easier to spend than precious metals (it can be sent anywhere in the world over the Internet) and certainly easier to store (on a wallet on your PC or smartphone). Transactions aren’t totally anonymous, but can only be traced with great effort. As a new and somewhat volatile asset, however, Bitcoin is the most risky of the three. But it also promises the biggest potential gains.
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