A cashless society would be either dream or nightmare, depending on your perspective.
We may find out very soon if certain bureaucrats get their way.
Doomsayers have predicted for decades the government would eliminate paper currency. The fear used to be that forcing us all to use trackable credit cards and checks would let police and tax collectors monitor our private lives more thoroughly.
That fear is mostly gone now. Since 9/11, the “anything to keep us safe” crowd has proven most Americans will gladly trade liberty for safety – or at least promises of safety. (They will end up with neither, of course, but that’s another subject.) Attitudes are similar in much of Europe.
For central banks, eliminating cash has another important benefit: it greatly simplifies a negative interest rate policy.
If leaving your money in the bank earns you a guaranteed loss, the best defense is to hoard physical cash. Keep it in a safe at home, stuff it in the mattress, whatever.
This might be more trouble and risk than it’s worth if rates are only mildly negative. We don’t know how low they would go. A recent JPMorgan Chase study estimated
the European Central Bank could push deposit rates as low as -4.5 percent. That’s enough to hurt.
Not coincidentally, European authorities just launched a new anti-cash campaign. Last week a group of EU finance ministers asked the European Commission to “explore the need for appropriate restrictions on cash payments.”
Specifically, the ministers want to get rid of 500-euro notes, the highest denomination available. With these, you could store the equivalent of $1 billion in a three-cubic meter
space. That’s just a room-size vault, the kind you might see in a local bank branch.
You would need a vault more than twice that size to store the same amount denominated in 200-euro bills, the next largest. Eliminating bigger bills makes cash storage more expensive and less practical.
Not surprisingly, the EU finance ministers portray their recommendation as a “fight against the financing of terrorism.
” They don’t bother to explain how cash controls would have stopped events like last year’s Paris shootings
, because they wouldn’t.
This is yet another example of bureaucrats using terrorism to pursue ulterior motives. I don’t blame them; it works really well.
If you think this can’t happen in the U.S., think again.
Janet Yellen’s Federal Reserve is letting other central banks work out the kinks of a negative rate policy. They won’t hesitate to do the same here.
Will negative rates and cash controls restore economic growth? Probably not. But Brussels and Washington will look like they are “doing something.”
Apparently, that’s all most voters want.
is an Austin-based financial writer. Follow him on Twitter @PatrickW
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