Hang Onto Your Wallets: Negative Interest, the War on Cash, and the $10 Trillion Bail-in

In uncertain times, “cash is king,” but central bankers are systematically moving to eliminate that option. Is it really about stimulating the economy? Or is there some deeper, darker threat afoot? 

The stated justification for this move is to stimulate “demand” by forcing consumers to withdraw their money and go shopping with it. When an economy is struggling, it is standard practice for a central bank to cut interest rates, making saving less attractive. This is supposed to boost spending and kick-start an economic recovery. 

Consumers today already have very little discretionary money. Imposing negative interest without first adding new money into the economy means they will have evenless money to spend. This would be more likely to prompt them to save their scarce funds than to go on a shopping spree. 

The promise of Dodd-Frank, however, was that there would be “no more taxpayer bailouts.” 

Instead, insolvent systemically-risky banks were supposed to “bail in” (confiscate) the money of their creditors, including their depositors (the largest class of creditor of any bank). 

That could explain the push to go cashless. By quietly eliminating the possibility of cash withdrawals, the central bank can make sure the deposits are there to be grabbed when disaster strikes.

DYI