The Collapse of Cash

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I once went to my bank to withdraw some cash and was told I couldn’t have it. That’s something you can’t easily forget. I know I haven’t.

I was in the United Kingdom at the time. I had an account with a global bank, supposedly as accessible overseas as in the U.S. But U.K. law had recently changed: Banks now insisted that you tell them what you wanted the cash for before they would give it to you. Her Majesty’s government wanted to know.

I didn’t owe this bank any money. They owed me, since I had funds on deposit with them. But if I had tried to muscle my way past the teller and guards to grab my money out of the vault, I’d have been arrested and convicted as a bank robber.

Ironic, isn’t it?

There’s another irony afoot these days: The same institutions that create and traffic in money now want to ban it.

Paper and Coin

Once upon a time, sensible people regarded paper money as a symbol of monetary irresponsibility. They rightly considered that anything created out of thin air by “fiat” could just as easily be destroyed in the same way. They preferred coins made of precious metals whose value transcended national boundaries and governmental authority.

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Nowadays, some people treat cash as “safe” asset. They reckon that their wealth is more secure in the form of paper in their home safe, since banks everywhere are leveraged to the hilt and propped up by government bailouts. Let the government try to confiscate that!

This is where the buzzer sounds, signaling a wrong answer. Cash is no safer than a bank balance.

Many of us instinctively think of its physical form when we envision money. We talk about how many times a government deficit would stretch from the Earth to the moon if paper dollars were laid end-to-end. But the truth is a different story: By far, the largest amount of money exists and transacts in electronic form, as bank deposits and central bank reserves. The proportion of actual cash in the global economy is relatively tiny.

But that little bit of physical currency is upsetting the central banks of the world’s financial powers. Cash is a “bearer instrument” with a 0% interest rate. Electronic money in a bank account, by contrast, is subject to the interest rates set by central banks. Those interest rates can be set below zero, so that depositors lose money if they leave funds in the bank. This way, the central banks can “force” people to spend money — use it or lose it — which is supposed to “stimulate” the economy. Indeed, the Swiss, Danish and Swedish central banks have done just that in recent years.

But if people change their deposits for physical cash, this trick won’t work. You can’t impose negative interest on cash. That’s why some “policymakers” and “think-tanks” are seriously proposing the abolition of cash. For example, Kenneth Rogoff, the former chief economist of the International Monetary Fund (IMF), has proposed abolishing high-denomination banknotes such as the $100 and $500 notes. That would make it well-nigh impossible to store wealth in cash form.

A Cashless Society = An Unfree Society

The technological and practical need for cash has largely disappeared in parts of the world. In many countries, cards or smartphone apps of various types are regularly used even for tiny transactions.

Electronic money facilitates more than just private commerce. Sales tax, for example, could be automatically collected in real time on any electronic transaction. That would be wonderful for countries that struggle with tax collection, like Greece.

But it also illustrates how vulnerable electronic money is to arbitrary confiscation. All it takes is the flip of a switch, and poof! As a blues musician friend of mine likes to say, “Your money GONE!”

Of course cash, unlike electronic money, can’t be tracked. That’s why cash is associated with crime. Governments would just love to banish forever the image of briefcases filled with stacks of “Benjamins.” And they would be even more overjoyed if all of us were forced to leave digital financial-footprints everywhere we go.

Only One Secure Solution

Governments and banks — the originators and traffickers of money — want to get rid of it. IF they do, that stack of bills under the mattress, in your safe or in a vault in Singapore or Geneva, will be worthless.

There’s only one way to avoid losing your wealth when cash finally dies. To be truly sovereign, you need wealth in forms that are not legislated or controlled by anyone. That means “quiet” wealth: precious metals, rare collectibles, land and similar investments whose value comes from the free market, not government.

You have been warned.

Kind regards,
How to Hold Gold Offshore
Ted Bauman
Offshore and Asset Protection Editor