A complete ban of cash becomes more real

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Полный запрет наличных денег становится реальнее

The story associated with prohibition of paper money, is gaining momentum. Recently discussed only the possibility of development of this situation, but last week two of the specific banknotes were criticized.

On Monday, the head of the European Central Bank’s Benoit coeure said that the arguments in favour of the bill banknote €500 cannot be ignored.

“We are actively considering this issue, we will take a decision soon. The competent authorities increasingly suspect that they are being used for illegal purposes. This is the argument that we cannot ignore, given the importance of combating money laundering and the financing of terrorism,” he said.

And then former U.S. Treasury Secretary Larry summers urged to withdraw from circulation banknotes of €500 and $100.

Prominent economists and banks are actively supported these ideas, as the opinion of a complete withdrawal of cash from circulation sounds more and more often in recent months.

The reasoning is almost always the same: cash used by criminals, terrorists and those who use tax loopholes. There are even entire scientific work on this topic.

The study’s authors from Harvard University say that if “bad guys” will not be able to use banknotes with large denominations, they will face high costs, they will be easier to detect. Roughly speaking, the destruction of such banknotes would destroy their “business model”.

But this is just ridiculous. Imagine a huge pile of bureaucrats and politicians who sit in office and pretend that you know everything about criminal activity. Crime is always being improved, so was at all times, throughout the history of mankind.

And cancellation of banknotes will not help to cope with crime. People who break the law will exist long after we cease to exist the current financial system.

Most interestingly, some governments, in a difficult economic situation or even in default, so desperate to achieve economic growth, what decided to add to its calculations of GDP revenues from the illegal drug trade and prostitution, and this is often associated solely with cash calculations.

So they just reduce the size of its economy, if it will prevent cash.

But what’s really behind the attempts to ban? Why is there such a large movement for a ban in use for criminal purposes is a very small percentage of the population?

Cash are the Achilles heel of the financial system. Central banks keep rates near zero for nearly eight years. But their policy is not working, this is especially noticeable in Europe, where run economic growth and failed to achieve a modest inflation target.

And their natural reaction is to attempt to do the same thing on, but on a large scale. The ECB, for example, imposed a negative interest rate, as the Bank of Japan.

Even the fed acknowledged that negative interest rates can be entered, this option is considered.

They have no choice: the increase in rates will lead to bankruptcy of the government and completely destroy hope for economic growth.

As the global economic downturn only intensifies, Central banks have no other choice but to take rates even further into negative territory. While such rates will be the main factor in the destruction of the system.

Sooner or later, commercial banks will be forced to introduce negative interest rate to their customers. Many have already begun to do this, especially for large depositors. And it’s completely insane.

No sane person will not keep the money in the Bank and still pay for it. Eventually people will realize that it is better to keep the money in the form of cash under the mattress. Of course, they do not pay interest, but no one will demand a fee from them.

If you have on account 100 thousand in any currency, with a negative rate of 1%, you will have to pay every year to Bank on 1 thousand Better to spend the money once and buy safe, where the money will be relatively safe.

The problem is that the banks do not have money. They use clients ‘ money or take credit from the Central Bank. But throughout the entire financial system does not have enough money to cover all the deposits.

More importantly, banks, especially in the US and Europe, is extremely illiquid. They invest huge money in form of deposits into illiquid loans or securities of dubious quality, and then not bear little responsibility for bad investments.

If rates will be negative for all customers, banking and financial system will simply collapse under the pressure of those who want to take their money. Banks do not want that to happen. The government don’t want that to happen.

But since Central banks no other option but the introduction of negative rates, the only logical option is a complete ban on cash. You just need to bind everyone to keep money in the banking system.

This is an absolute form of control over the movement of capital. And, apparently, such control may be introduced, at least in some countries.

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