The View | With digital currencies on the march, cash won’t be king for much longer
Previously unsavoury proposals gain more support from economists and authorities
In his sweeping history of the Third Reich, historian Richard Evans quotes Joseph Goebbels, the regime’s minister of public enlightenment and propaganda. In 1933, Goebbels said: “It is not enough to reconcile people more or less to our regime, to move them towards a position of neutrality towards us. We want rather to work on people until they have become addicted to us.”
Today, governments have struggled and failed to revive economic growth and global trade. They remain weak after almost eight years of near zero rates. Negative rates are the only recourse in what could be a futile attempt to save economies.
Governments will have to wage a mighty propaganda, regulatory and technology campaign to sell and impose upon a financially embattled populace a savings experience that fundamentally distorts reality in such a way that the laws of nature do not apply – being penalised for saving. And it represents new opportunities for financial technology to create the means for a cashless society that makes negative interest rates work effectively on a global scale.
Negative interest rates can only work in a cashless environment where governments possess the means to control spending and saving
As the international monetary system struggles with stalled aggregate demand, capital flight, declining trade and collapsing markets, the ultimate form of capital control – an authoritarian cashless economy – is the regulators’ only way in order to enforce a negative interest rate policy.
The Bank of Japan surprised markets by adopting negative interest rates in January, the European Central Bank cut rates again on March 10, charging banks 0.4 per cent to hold their cash overnight. At the same time, it offered a premium to banks that borrow in order to extend more loans. Janet Yellen, the US Federal Reserve chairwoman, said in November that a change in economic circumstances could put negative rates “on the table” in the United States.
Government planners around the world are considering how they will roll out the regulations and technology for a cashless economy. The greatest and most immediate financial technology challenge is not blockchain, but how to realise the dominance of digital currency. Vanquishing cash will gain pace as financial industry policies begin to favour faster development of digital currency platforms on mobile platforms to replace it.
The world’s preference for cash has only slowly surrendered despite the advance of electronic means. According to available figures from the Bank for International Settlements, outstanding cash in circulation was 7.9 per cent of gross domestic product in the largest 19 economies in 2014 compared with 8.4 per cent in 2010.