Many loyal customers of Jack Hunt and followers of this blog may recall our article from April of this year titled War on Cash. That article dealt with the potential for the future abolition of currency, both in the United States and abroad.
The speculative nature of that blog has suddenly become far more credible with the recent startling news from India.
India Eliminates High-Value Rupee Notes
Indian Prime Minister Narendra Modi announced a few weeks ago that 500 ($7 USD) and 1000 ($14 USD) rupee banknotes will be withdrawn from circulation, allegedly as part of a crackdown on rampant corruption and counterfeit currency.
As of midnight Tuesday November 1st, the country’s two largest banknotes were no longer considered legal tender after Prime Minister Modi’s surprise announcement just hours before.
Citizens will have 50 days to exchange the old money for new at banks, but only by providing ironclad identification. Individuals who deposit over 250,000 rupees ($3,700) face severe tax penalties starting at a rate 45% of the deposit value.
Impact of Removing High-Value Notes
The impact of such a policy becomes even more significant when one considers that almost 50% of Indians do not hold a bank account and over 80% of Indian transactions are conducted in cash including for large purchases like cars or a homes. It’s not uncommon to Indians to pay over 1-2 Million Rupees for a home in India.
The surprise step is purportedly designed to bring several billion dollars of cash in unaccounted wealth back into the mainstream economy. This move will also, allegedly, hit the finances of Islamic extremists targeting India who are suspected of using fake 1000 rupee notes to fund terrorism.
While abolishing these notes might reduce crime and tax evasion perpetrated by a few, the removal of the high denomination notes restricts economic freedom of all Indians.
Regardless of your country of citizenship, the more one is required to use a bank account the more the banks (and its partner the government) know about where and how depositors spend their money. Ultimately, it’s another form of a government stealing liberty from its citizens.
Could the ECB Kill the 500 Euro Note?
It is also reported that the European Central Bank (ECB) has begun planning the demise of the 500 EURO note, the one banknote which not only makes up 30% of total European circulating currency by value, but also provides the most cost efficient alternative to Europe’s effective money “tax,” better known as NIRP (Negative Interest Rate Policy). The prospects for NIRP to expand worldwide including to the U.S. have also been highlighted in previous blogs at this site.
Former U.S. Treasury Secretary, Fed Chairman wannabe and Harvard alum Lawrence Summers recently wrote a dissertation urging countries around the world to stop issuing high denomination banknotes, allegedly to deter crime and corruption.
Summers was quoted as saying, “Even better than eliminating the 500 Euro note would be a global agreement to stop issuing notes worth more than, say, $50.” In another recent blog titled “It’s time to kill the $100 bill,” Secretary Summers made it clear that the elimination of paper money is only in its infancy.
Elimination of Cash a Real Possibility
Not surprisingly, just like in Europe and India, the argument is that eliminating high denomination U.S. currency will somehow eradicate crime. Quoting the former Secretary of the Treasury, “a moratorium on high denomination notes will make the world a better place.”
If the Fed heeds the advice of Mr. Summers and EU Central Bank president Mario Draghi, or follows the actions of Indian Prime Minister Modi, eliminating all currency may be in our future. Currency is the only paper based alternative store of wealth to a negative interest rate digitalized future that is potentially in store for all of us.
That being said, what would be left as an alternative to a currency (or lack thereof) related to a potential economic collapse? Gold and silver, of course. Precious metals have been the one true tangible currency for thousands of years.