{"id":11590,"date":"2016-01-06T14:21:08","date_gmt":"2016-01-06T19:21:08","guid":{"rendered":"http:\/\/www.megalextoria.com\/wordpress\/?p=11590"},"modified":"2016-01-06T14:21:08","modified_gmt":"2016-01-06T19:21:08","slug":"the-war-against-cash-part-ii","status":"publish","type":"post","link":"http:\/\/www.megalextoria.com\/wordpress\/index.php\/2016\/01\/06\/the-war-against-cash-part-ii\/","title":{"rendered":"The War against Cash, Part II"},"content":{"rendered":"
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By DANIEL J. MITCHELL<\/a>\n<\/div>\n<\/div>\n
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I wrote yesterday<\/a> that governments want to eliminate cash in order to make it easier to squeeze more money from taxpayers.<\/p>\n

But that\u2019s not the only reason why politicians are interested in banning paper money and coins.<\/p>\n

They also are worried that paper money inhibits the government\u2019s ability to \u201cstimulate\u201d the economy with artificially low interest rates. Simply stated, they\u2019ve already\u00a0pushed interest rates close to zero<\/a> and haven\u2019t gotten the desired effect of more growth, so the thinking in official circles is that if you could implement negative interest rates, people could be pushed to be good little Keynesians<\/a> because any money they have in their accounts would be losing value.<\/p>\n

I\u2019m not joking.<\/p>\n

Here\u2019s some of what Kenneth Rogoff, a professor at Harvard and a former economist at the International Monetary Fund, wrote<\/a> for the U.K.-based Financial Times<\/em>.<\/p>\n

Getting rid of physical currency and replacing it with electronic money would\u2026eliminate the zero bound on policy interest rates that has handcuffed central banks since the financial crisis. At present, if central banks try setting rates too far below zero, people will start bailing out into cash.<\/p><\/blockquote>\n

And here are some passages from an editorial<\/a> that also was published in the FT<\/em>.<\/p>\n

\u2026authorities would do well to consider the arguments for phasing out their use as another \u201cbarbarous relic\u201d\u2026even a little physical currency can cause a lot of distortion to the economic system. The existence of cash \u2014 a bearer instrument with a zero interest rate \u2014 limits central banks\u2019 ability to stimulate a depressed economy.<\/p><\/blockquote>\n

Meanwhile, Bloomberg<\/em> reports<\/a> that the Willem Buiter of Citi (the same guy who endorsed military attacks on low-tax jurisdictions<\/a>) supports the elimination of cash.<\/p>\n

Citi\u2019s Willem Buiter looks at this problem, which is known as the effective lower bound (ELB) on nominal interest rates. \u2026the 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. \u2026Buiter\u2019s solution to cash\u2019s ability to allow people to avoid negative deposit rates is to abolish cash altogether.<\/p><\/blockquote>\n

So are they right? Should cash be abolished so central bankers and governments have more power to manipulate the economy?<\/p>\n

There\u2019s a lot of opposition from very sensible people, particularly in the United Kingdom where the idea of banning cash is viewed as a more serious threat.<\/p>\n

Allister Heath of the U.K.-based Telegraph<\/em> worries<\/a> that governments would engage in more mischief if a nation got rid of cash.<\/p>\n

Many of our leading figures are preparing to give up on sound money. The intervention I\u2019m most concerned about is Bank of England chief economist\u00a0Andrew Haldane\u2019s call for a 4pc inflation target, as well as his desire to abolish cash, embrace a purely electronic currency and thus make it easier for the Bank to impose substantially negative interest rates\u2026 Imagine that banks imposed -4pc interest rates on savings today: everybody would pull cash out and stuff it under their mattresses. But if all cash were digital, they would be trapped and forced to hand over their money. \u2026all spending would become subject to the surveillance state, dramatically eroding individual liberty. \u2026Money is already too loose – turning on the taps would merely further fuel bubbles at home and abroad.<\/p><\/blockquote>\n

Also writing for the Telegraph<\/em>, Matthew Lynn expresses reservations<\/a> about this trend.<\/p>\n

As for negative interest rates, do we really want those? Or have we concluded that central bankers are doing more harm than good with their attempts to manipulate the economy? \u2026a banknote is an incredibly efficient way to handle small transactions. It is costless, immediate, flexible, no one ever needs a password, it can\u2019t be hacked, and the system doesn\u2019t ever crash. More importantly, cash is about freedom. There are surely limits to the control over society we wish to hand over to governments and central banks? You don\u2019t need to be a fully paid-up libertarian to question whether\u2026we really want the banks and the state to know every single detail of what we are spending our money on and where. It is easy to surrender that freedom \u2013 but it will be a lot harder to get back.<\/p><\/blockquote>\n

Merryn Somerset Webb, a business writer from the U.K., is properly concerned<\/a> about the economic implications of a society with no cash.<\/p>\n

\u2026at the beginning of the financial crisis, there was much talk about financial repression \u2014 the ways in which policymakers would seek to control the use of our money to deal with out-of-control public debt. \u2026We\u2019ve seen capital controls in the periphery of the eurozone\u2026 Interest rates everywhere have been at or below inflation for seven years \u2014 and negative interest rates are now snaking their nasty way around Europe\u2026 This makes debt interest cheap for governments\u2026and it and forces once-prudent savers to move their money into the kind of risky assets that are supposed to drive growth (and tax receipts).<\/p><\/blockquote>\n

Amen. She\u2019s right that low interest rates are good news for governments and not very good news for people in the productive sector<\/a>.<\/p>\n

Last but not least, Chris Giles wrote a column<\/a> for the FT<\/em> and made one final point that is very much worth sharing.<\/p>\n

Mr Haldane\u2019s proposal to ban cash has all the hallmarks of a public official confusing what is convenient for the central bank with what is in the public interest.<\/p><\/blockquote>\n

Especially since the central bankers are probably undermining long-run economic prosperity with short-run tinkering.<\/p>\n

Moreover, the option to engage in Keynesian monetary policy<\/a> also gives politicians an excuse to avoid the reforms that actually would boost economic performance.\u00a0Indeed, it\u2019s quite likely that an easy-money policy exacerbates the problems<\/a> caused by bad fiscal and regulatory policy.<\/p>\n

Let\u2019s conclude by noting that maybe the right approach isn\u2019t to give politicians and central bankers more control over money, but rather to reduce government\u2019s control over money. That\u2019s one of the arguments I made in this video<\/a> I narrated for the Center for Freedom and Prosperity.<\/p>\n