Monopoly is going cashless. A new generation of kids will not get the feeling of being handed two crisp $100 bills for passing Go. Instead, the balance on their “card” will increase. Granted, different versions of the classic game are coming out all the time and this cashless version is one of those, but it’s interesting to see that story in the news along with the following:
Larry Summers calls for end to $100 bill. He claims it is to combat illegal activities but I would think such a call might come from the FBI, not a Harvard professor. My guess is that illegal activities would probably go on just the same.
Europe is in the midst of calling for an end to the 500 euro note. These calls for “electronic money” are based in the language of common sense in order to make them more acceptable to the public. However, there are two other things at work and they are not coincidences.
Negative interest rates are now a reality around the world. A negative interest rate means you pay someone to lend them money. If you buy a bond, you get less than 100 cents on the dollar back on purpose, and you are okay with that investment. Guaranteed loss. The only way that makes sense is if you think your loss would be larger in any other investment.
Think about it. If you had some money in the bank for emergencies and safekeeping, and they told you they were going to start reducing your balance by 1/2% per year, would you be tempted to take it out? Many people are doing that around the world. How can banks and governments stop these massive withdrawals? Well one way is to eliminate cash because then there is nothing to withdraw. Convenient isn’t it?
The other primary concern has to do with bank failures and what are known as “bail-ins”. When you deposit money in the bank, you become essentially an unsecured creditor. You have an IOU from the bank. You also have FDIC insurance, which is what most people rely on. However, any uninsured balance is unsecured.
If the bank should fail, that unsecured money is subject to loss. While that should not impact insured accounts, it is important to keep in mind. It is in the banking system’s best interest to have all money as deposits in the banking system and not as cash that people keep at home.
Most of us take as a given that we can have cash. It is time to recognize that a significant segment of academic and financial elites around the world are pushing to do away with that.