It came from a voice that has, by law, the ear of the German government. Peter Bofinger is a member of the German Council of Economic Experts – the “Five Sages on the Economy” – which in its official function advises the government and parliament on economic policy issues. These folks are taken seriously.
So Bofinger told the German magazine Der Spiegel in an interview (full interview behind paywall) that cash should be done away with.
In Denmark, a new law was proposed that would allow shops to refuse cash payments. Officially, it’s to reduce the “administrative and financial burdens” of handling cash. Since it’s up to the shop to decide, the law sounds innocuous. But it would be another step to making money a purely electronic entity that can be seamlessly tracked anywhere. It would also be another step in granting the central bank the absolute power to inflict confiscatory monetary policies on any entity or person with money in the bank.
This law would come in handy. Danmarks Nationalbank has imposed a negative deposit rate of -0.75%, with the intent of flogging savers and confiscating their money until their mood improves and limiting the appreciation of the krone against the sagging euro. But to evade the wrath of negative deposit rates, savers can pull cash out of the bank and store it under their mattress. And this must be stopped – by making cash useless.
So, Der Spiegel asked, was this law in Denmark “a good idea?”
“With today’s technical possibilities, coins and notes are in fact an anachronism,” Bofinger said. “They made payments incredibly difficult,” with people wasting all sorts of time at the cashier as they wait for the person ahead of them to dig through their belongings to find some cash, and for the cashier to render change (rather than, for example, waiting for someone to find the right credit card, complete the transaction, and wait for approval).
This sort of dubious, government-mandated timesaver was even too shaky for Bofinger….
“But the additional time is not the largest benefit of the elimination of cash,” he said. “It dries out the markets for moonlighting and drug trafficking. Almost a third of the euro cash in circulation consists of 500-euro notes. No one needs those for shopping; light-shy figures use them for their activities.”
To forestall that these criminal elements switch to other currencies, he said that “it would be better if the Eurozone, the US, Great Britain, and Switzerland give up cash at the same time.”
And then he added the real reason for abolishing cash in such a coordinated, wide-ranging manner:
“It would be easier for central banks to impose their monetary policies. At this time, they cannot push interest rates appreciably below zero because the savers would hoard cash. If there is no cash, the zero bound is eliminated.”
So, given that this needs to be a multinational effort, should the German government throw its weight behind the elimination of cash on the international scene?
“That would be at any rate a good topic at the G-7 summit,” he said, which is coming up on June 7–8 in Bavaria.
But support is not unanimous on the German Council of Economic Experts. Lars Feld, one of the other “Five Sages on the Economy,” shot him down in the Frankfurter Allgemeine with a nod to Fyodor Dostoevsky’s famous quote, “Money is coined freedom.” Feld put it this way: “Cash is coined freedom.”
Feld also criticized Bofinger for having “apparently neglected the constitutional aspects of this proposal.” Not that they couldn’t be ruled away by the courts, but for now, the constitution – and not only in Germany – would still be a roadblock.
And there was another problem: Cash enables individual citizens to “escape the reach of the state” when their intentions are not legitimate, including moonlighting, which has the illegal dimension of tax evasion, he said. “But moonlighting is often for those affected the only chance to earn a livelihood at all.”
So deprive them even of that?
Cash is one of the few ways to escape for a tiny moment the powerful octopus arms of our seamless, borderless surveillance society. And it is one of the last, if feeble, checks on the absolute power of central banks. And it represents an aspect of “freedom,” as Feld put it. Hence the by now overt war on cash. Cash simply must cease to exist.
A disturbing scenario is playing out for folks fretting about “financial instability,” as it’s called in central-bank jargon. Read… “Buyers beware”: Capital Markets “Completely Backwards”