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Is There a War on Cash?

March 21, 2016

The negative interest rate environment spreading globally is making some want to literally kill cash. Financial experts worldwide have called for eliminating large cash bills by withdrawing them from circulation over time.

 

For instance, Larry Summers, a former Treasury secretary and advisor to President Obama, wants to stop issuing new $100 bills and remove old ones from circulation. Similarly, Mario Draghi, the President of the European Central Bank, hinted at eliminating the 500 Euro note, and perhaps the 200 and 100 notes too.

 

They say it’s a wise move because drug dealers, tax cheats and terrorists primarily use these large bills. Their thinking is normal folks don’t or won’t care.

 

Whether that’s true or not, negative interest rates discourage saving, meaning people will want to pull their cash out of banks. For a lot of people, that could be a lot of money. Obviously, it’s harder to hoard large amounts of cash without the benefit of large bills. Think the banks don’t know that? Wrong.

 

So what does this all say about our central bankers and economists? Given interest rates globally and generally stagnant economies, it seems they’re running out of ideas if killing cash is the way to go.

 

Perhaps it actually is the financial equivalent of gun control.

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