It has long been predicted that society would transform into a cashless one. The futurists say that we would use chips inserted into our skin to buy milk, while today’s technology pioneers are developing wearable technology to pay for goods and services. Many fear that a cashless society would give the government more power and intrude on your privacy. Proponents say it’s just progress.
One top banking economists in the United States proposes that we should abolish cash, tax currency and remove the fixed exchange between currency and central bank reserves and deposits. Why? Well, according to Citi’s Willem Buiter, because interest rates have been suppressed to nearly zero, the Federal Reserve is unable to print enough money, and depositors are less likely to place their money in banks due to low rates.
In other words, consumers won’t save and, therefore, financial institutions can’t lend money.
This is known as the effective lower bound (ELB) on nominal interest rates. As Bloomberg News writes: “the ELB only exists at all due to the existence of cash, which is a bearer instrument that pays zero nominal rates. Why have your money on deposit at a negative rate that reduces your wealth when you can have it in cash and suffer no reduction? Cash therefore gives people an easy and effective way of avoiding negative nominal rates.”
Although the money supply has exponentially grown since 2009, Buiter doesn’t believe the amount is sufficient enough. This is why he has proposed these three measures instead of just, you know, growing an economy through sound, fundamental ways.
Buiter conceded that his idea is a controversial one, and decided to list the disadvantages of such a system, though he immediately dismissed them by stating: “In summary, we therefore conclude that the arguments against abolishing currency seem rather weak.”
Anyway, here are the outlined disadvantages:
- Abolishing currency would create change and change is resisted.
- Currency use is still high among low-income consumers.
- Governments and central banks would suffer from a loss of “seigniorage revenue.”
- Eliminating currency would lead to a reduction in privacy and create government intrusion.
- Switching to electronic payment systems would produce security risks.
Bloomberg concluded that it’s rather unlikely any U.S. administration would add this to their campaign of ideas and pledges. Overall, it’s close to impossible such a system would be installed, but it does highlight just how absurd Keynesians and status quo financial minds are these days. Not only is it bad enough central banks have launched a tsunami of money creation that has destroyed their fiat currency, it’ll be far worse to have every single transaction recorded and then sent off to the government for bureaucrats to monitor.
Yeesh. First, one Keynesian wants a war with space aliens. Now, a Keynesian wants a tax on currency. What’s next, a $1 trillion coin? Oh wait…
I’ve been anticipating this for decades. Governments can barely wait, because it finally gives them total control at the finest possible level over everyone and everything. The advantages to the banks of course are equally obvious: they become indispensable crossroads for total economic control.
Oh,and remember, when cash is outlawed, only outlaws will have cash. Thus, in my fantasies, I’ve always pictured the new outlaw cash as being small-denomination gold coins minted in the Caribbean and that they would have the images of famous Mafia heads on their obverses: the higher the denomination, the more important and powerful the historical Mafia head. (I haven’t figured out whether Don Corleone or Tony Soprano would count since they’re fictional, and besides, Tony was head of the lowly New Jersey mob anyway, so he’d be lucky to make it on the dime.)
At any rate, I’ve wondered whether bartering would be outlawed too, you know, as part of the all-digital-money plutocracy. If so, then we digital peasants wouldn’t even be allowed to engage in practices such as chicken trading, practices utilized by our less-than-digital ancestor peasants from time immemorial.