Negative Interest Rates Will Prevail in the Impending Cashless Society
Say goodbye to your Ben Franklins…
When we left off last week, our focus was on stocks. And we showed you .
Today, we’re returning to one of the other big stories we’ve been tracking for you – the .
That’s because this story is moving faster than even we imagined.
By now, every Daily Cut reader should be aware that governments around the world are switching to purely digital versions of their currencies.
That means no more banknotes… and no more coins. All money will be nothing but electronic 1s and 0s in government databases.
And as we’ll show you today, the U.S. government may have no choice but to follow suit and get rid of cash, too.
We call this cash-free future the “digital slaughterhouse”…
It’s a term we took from currency expert Jim Rickards. As he put it…
When pigs are going to be slaughtered, they are first herded into pens for the convenience of the slaughterhouse. When savers are going to be slaughtered, they are herded into digital accounts from which there is no escape.
That’s what makes this development so important for your wealth. You probably already do most of your spending digitally on a debit or credit card. But you still have the option of using physical cash.
But in the cashless society that’s coming, you’ll have no choice but to leave your cash on deposit in the bank.
So central bankers will be able to subject your savings to whatever crazy policies they come up with to cope with the next financial crisis.
This includes negative interest rates on your savings…
As crazy as it sounds, central bankers believe that confiscating a portion of your savings each year will force you to rush out and spend.
This is already a reality in Europe. And it stings…
I (Chris) recently looked at the option of moving some of my parents’ retirement savings out of stocks and into a cash deposit in the bank.
They live in Ireland. It’s part of the European Union, where the central bank has set the key lending rate in negative territory. And the cash deposit rate they were offered was MINUS 0.75%.
At that rate, for every €100,000 they put on deposit, they lose €750 a year.
And we don’t know how deep into negative territory central banks will take rates when their backs are against the wall.
At a negative rate of 2%, my folks would see €2,000 go up in smoke each year for every €100,000 they have on deposit.
And on a nest egg of €1 million, at that rate, we’re talking about the central bank confiscating €20,000 a year.
Some nations are already nearly cashless…
In Sweden, just 2% of the total value of all transactions involves physical cash.
So one option the Swedish government is eyeing is a government-backed digital currency called the e-krona.
And the Australian government is considering jailing you for up to two years for using more than $10,000 in cash in one transaction.
That’s according to a new bill winding its way through the Australian parliament.
It’s all part of the global push toward digital-only fiat currencies. And the U.S. won’t be far behind.
Washington is already waging its own War on Cash…
Americans rely more on physical cash than Swedes. Cash makes up 28% of all transactions in the U.S.
But only 6% of transactions of $100 or more involve cash. And Washington is well on its way to criminalizing cash use for large transactions.
Today, if you try to withdraw, deposit, or convert more than $10,000 to a foreign currency in cash, your bank automatically flags the transaction as suspicious to the feds.
And there is increasing pressure on the U.S. to roll out a fully digital version of the dollar.
That’s because of what’s happening in China…
As we already , the first major economic power to overhaul its money system this way will be China.
China’s central bank says it will launch a digital-only version of the Chinese currency, the renminbi.
And that’s happening faster than we originally thought.
Mu Changchun, the deputy director of the central bank’s payments department, says China’s new e-currency is “almost ready” for release.
And if Washington wants the U.S. dollar to stay top dog globally… it has little choice but to follow suit.
And we’re not the only ones who think so.
Crypto investor Anthony Pompliano agrees…
He’s a partner and cofounder of a fund called Morgan Creek Digital.
It invests in companies active in the buildout of the crypto economy. It also invests directly in cryptocurrencies and other digital assets.
Pompliano is also a regular guest on CNBC. And as he put it on air last week, the U.S. needs to follow China’s lead and fully digitize the dollar.
That’s because, if the U.S. doesn’t act, it risks seeing digital-only currencies take the lead on the international stage. Pompliano…
The U.S. currently controls the world’s reserve currency. The U.S. dollar holds this position because it is widely adopted, generally seen as trustworthy, and is supported by the most effective military in the world.
If a different currency was to gain more adoption, become more transparent, or be backed by a more effective military, the U.S. dollar would be in jeopardy of losing global reserve status.
And this is the threat rival digital currencies present to the dollar right now.
If you’ve a U.S. bank account, dollars are easy to get your hands on…
You can also get dollars out of an ATM in the U.S. and some other countries.
But that’s it…
Contrast that with China’s planned digital currency. As with bitcoin, all you need is an internet connection and an app on your smartphone to access it. Pompliano again…
If someone can more easily get access to the Chinese currency compared with the U.S. dollar, then the U.S. dollar will be at a disadvantage. So, there won’t be a competition between digital and non-digital currencies in the future. Every currency will be digitized.
That means the days of physical currencies are numbered. Dollars… euro… baht… and every tangible banknote and coin in the world… all gone.
So… in a purely digital-currency world, the $64,000 question then becomes: What happens to bitcoin?
Our answer may surprise you…
Bitcoin and other decentralized cryptocurrencies will be big winners.
Think of it like this…
When all currencies are purely digital, one of the only major differences among them will be how their monetary policies are run.
We know what the monetary policy of bitcoin is. It’s run by an algorithm. New bitcoins enter the supply at a . And there’s a hard cap of 21 million bitcoins.
Contrast that with the money supply of the U.S. dollar.
Congress can spend as many new dollars as it sees fit. And instead of a neutral algorithm steering monetary policy, you’ve got Jerome Powell at the Fed calling the shots.
The same goes for other government-issued currencies – whether they’re digital-only or not.
That’s what makes bitcoin so attractive over the long run…
Bitcoin has been under pressure of late.
It soared 248% from the start of the year to June 26. Since then, it’s down 37%.
That’s encouraged the usual naysayers out there in the mainstream press. It’s something world-renowned cryptocurrency expert Teeka Tiwari to Palm Beach Daily readers on Friday.
But if we’re right… and all money will be digital money in the near future… bitcoin will be even more popular.
Teeka sums it up best…
Private cryptocurrencies, as opposed to the government version, afford users greater anonymity. And you have scarcity with private cryptocurrencies, which you won’t have with crypto-fiat hybrids. This protects you from having your wealth inflated away by governments and central banks.
Bitcoin, for instance, has a hard cap of 21 million coins. You won’t have that guarantee with digital fiat currencies. There will still be a central bank that can fiddle with interest rates and balloon the money supply, causing inflation.
So, if you already own bitcoin, sit tight.
And if you don’t… consider a small grubstake.
Just remember that bitcoin can be a roller coaster ride. So don’t bet the farm. Teeka recommends an initial stake of between $200 and $400 for smaller investors and $500 to $1,000 for larger investors.
And keep an eye out for tomorrow’s dispatch. We’ll be taking a closer look at why the financial freedom that bitcoin offers matters in the first place.
Chris Lowe October 7, 2019 Dublin, Ireland
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.