I hate coins, bills, writing checks — all of it. I even hate using my debit card with its tedious chip insert, PIN input, etc. If it were up to me, I would pay everyone by Facebook, which now allows you to transfer money seamlessly and instantly from your account to anyone you can message — all for free.
To me, no cash means freedom. I can transact anytime, anywhere and have all those digital records nicely summed up for me at the day’s end.
But then again, I am a child of the Internet. And the notion of privacy has long been abandoned by me and most of my cohorts. I am very comfortable existing in the virtual world of bits and bytes, and I have no qualms about leaving records of my financial transactions for anyone to see.
I understand that my view is far from universal. Many people, including many my own age and even those many years younger, value their privacy. They value the notion of anonymity and the freedom to transact without anyone knowing their buying habits. That’s why bitcoin is so popular as a concept, if not as a currency.
|To me, no cash means freedom.|
But this column isn’t about cultural morays, it’s about finance. And this topic took on an interesting twist last week when former Minneapolis Fed President Narayana Kocherlakota penned a column calling for the abolition of cash on policy grounds. Mr. Kocherlakota’s point was that as long as we have cash, central bankers will never succeed in their attempts at quantitative easing.
Mr. Kocherlakota noted that in order for QE to truly be effective, central bankers need the freedom to take rates deep into negative territory. However, as long as there is cash, there will be a natural “zero bound” to their efforts that will frustrate all policymakers’ attempts to spur credit creation. His argument holds a great degree of logic. Indeed, one of the surprising aspects of the QE experiment is the counterintuitive result of hoarding rather than spending in countries where negative rates have been implemented.
In Switzerland, more and more companies are taking out insurance policies to protect their cash hoards from theft or damage, according to Bloomberg. “Because of the low interest-rate level, we note increasing demand for insurance solutions for the storage of cash,” said Philipp Surholt at Zurich Insurance Group AG, among underwriters reporting a surge in such requests. “We’re seeing demand for coverage for sums ranging from 100 million to 500 million francs.”
|“The abolition of cash is unlikely to occur any time soon.”|
Of course, Mr. Kocherlakota’s argument – while intellectually elegant – would face a wave of political protest. Citizens would view a move to pure digital cash as the final appropriation of property by the state. Although in practice there is little difference between paper money and digital cash – both are simply symbolic stores of value – the physical nature of paper provides one last frontier of freedom for the individual. After all, if cash were digital, there would be nothing to prevent the government from emptying your bank account at a moment’s notice. (Yes, I have been binge-watching Homeland over the Labor Day weekend).
That’s why, despite Mr. Kocherlakota’s best intentions, the abolition of cash is unlikely to occur anytime soon. And if it did, it would no doubt spur a massive demand for gold – that other store of value that is portable and anonymous. Which is why these days holding gold in your portfolio is not just a matter of investment, but a case of insurance as well.
HSBC is in the spotlight again, as U.S. prosecutors seek criminal charges against a unit of HSBC Holdings Plc in relation to conduct on its foreign-exchange desk.
In 2012, HSBC admitted to helping Mexican drug cartels launder money and to doing business with Iran and other sanctioned nations. The bank avoided charges by signing a deferred-prosecution agreement, which required it to improve its internal controls and to submit to an outside monitor. However, if the Justice Department determines that HSBC broke U.S. law after it entered into the agreement, it could be held liable for the charges back in 2012. This could jeopardize the bank’s ability to move beyond its legal troubles.
Monthly job openings increased in July, as reported by the Bureau of Labor Statistics. Indeed, employers posted 3.9 percent more jobs in July than in June, with the private sector hiring more workers in professional and business services, according to the Job Openings and Labor Turnover Summary (JOLTS).
The monthly report from the Labor Department is a key barometer of economic conditions, and something closely watched by Fed Chair Janet Yellen.
According to recently released data, American drivers fueled up this summer at levels not seen since the recession began almost nine years ago. Consumers purchased about 406 million gallons of gasoline per day, on average, in June, presumably an all-time record according to data from the U.S. Energy Information Administration. This shows gasoline is relatively cheap and that Americans are working, vacationing and driving more.
The Money and Markets team