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Eric Fry, continuing his flight of fancy, reports...
In last Saturday's edition of The Non-Dollar Report, we took a little flight of fancy. We imagined that cash might be outlawed. "[Not] every form of cash," we explained, "just the paper kind, which never leaves behind any sort of digital footprint."
At first blush, this idea seems pretty wacky. But after a few moments of reflection, it can seem much less so. As we remarked:
[N]ow that the U.S. government has gorged itself for the last 100 years on the fruits of dollar debasement, it might try to upgrade its tactics. Let's call it "Debasement 2.0" - all the benefits of Debasement 1.0, but without the hassle of printing actual dollar bills.
This "upgrade" would do away with physical cash completely - i.e., dollar bills.
Why would the government make such a move?
Because dollar bills refuse to heel at the end of a leash. They go where they want to go and do what they want to do. They hide under mattresses... and travel to foreign lands... and never show up on a computer screen at the NSA.
Physical dollar bills are the only kind of cash that never leave behind any sort of digital footprint. This trait can be very inconvenient for a government that seeks to exercise total control over its money supply... for the good of the citizenry, of course.
Just maybe, the feds will come to believe that digital cash is the only kind an American really needs. Just maybe, the feds will decide that Americans should never again conduct a cash transaction that fails to leave some sort of digital footprint.
Admittedly, this hypothesis is pretty fringy, and probably does not pose an immediate risk. But an early warning is usually much better than a late one. So we've decided to address the topic one more time in today's issue.
Read on...
Is Cash an Endangered Species?
If your government went rogue, and you had to go into hiding, how long do you think you could evade detection? In this technology-laden world, the ways that we are tracked are constantly expanding. Transactions that use physical cash are one of the few financial activities that remain private. Will cash be outlawed in the future? Does it matter if that happens?
On a recent trip to England, I flipped on the TV and was drawn to an unusual sort of game show called Hunted.
The idea was that volunteer contestants - sometimes alone and sometimes in pairs - try to hide from the authorities for as long as they can.
At some point during a normal day the hunted are told that they are now on the run. Then they have an hour to get their stuff together and start fleeing before their home is raided. The idea is to evade capture for as long as possible.
Pitted against them are the hunters. These are all genuine, professional government types - spies, military, police, hackers, etc. They have access to all the methods and technology used by real government security agencies when they hunt for actual fugitives from the law.
In a way, this show is a silly sort of exercise. But in another way, it's an important reminder of how much we are already tracked and monitored by our governments. If your country's government goes rogue in the future, then just how long do you think you could escape its tentacles?
In the TV show, the hunters are allowed to break into the contestants' houses, just as they would in real life. Once inside, they search for documents and electronic equipment, like computers and mobile phones.
They trawl through files and bank statements. They hack into social networks and emails. They look at phone records, and tap the phones of close friends and associates of the hunted. The idea is to build a profile of the people that they are after, and use it to find them.
Out on the street, their prey are faced with more immediate problems. Modern British towns and cities are full of cameras that silently monitor the streets day and night. It's said that the average Londoner is filmed several hundred times a day, just going about their normal business.
Many of these surveillance cameras are equipped with facial recognition technology. Once a target face is seen, the police are alerted. And it's not just faces. Car registrations can be read by cameras installed at the roadside, meaning target vehicles can be tracked and intercepted.
If that wasn't bad enough, the hunted also have to pay for things. Food, drink, transportation, lodgings - all require money. A watch is placed on the use of payment cards owned by the hunted. Any use immediately brings the security forces sweeping down on the payment location.
This leaves physical cash as the only way to stay anonymous when making payments. But even cash has a catch. You still have to get a hold of it before you can use it.
The trouble is, all the ATMs have cameras as well. And cash withdrawals are flagged too. Sure enough, several of the Hunted contestants were swiftly caught just after they used cards to make payments, or shortly after taking cash out of the bank.
None of this may seem like a problem in the real world. After all, this is just a game show. This technology exists so that real bad guys can be caught, not volunteer game show contestants.
Nevertheless, it was a reminder of the potential threats to liberty posed by big government. Politically speaking, we should never assume to know what's around the corner.
Today's supposedly free democracies could become tomorrow's totalitarian dystopias. Especially given enough economic hardship - the classic environment for fomenting radical political change.
The technology is already in place to track us pretty closely. And it continues to expand, reaching further and further into every aspect of our lives.
For that reason alone we should treasure physical cash as something that allows us a little bit of privacy. It's a quiet island of confidentiality, far from the super highways of publicly available information. You may not think that matters too much today. But it could matter a lot in future. We just don't know.
So if you value liberty, then you should value physical cash as well. Try to use it regularly where you can. If enough of us keep doing that, then it's less likely to disappear.
That said, physical cash is pretty weird stuff. In dry accounting terms, it's a liability of the central bank that produces it. It's something owed by them to whomever gets a hold of it.
But if you look at the actual money bills produced by central banks, you can be left a little confused. For example, British five-pound notes are signed by the current governor of the Bank of England. He makes a sober commitment to the bearer of the note to "promise to pay the bearer on demand the sum of five pounds."
So the commitment is that if someone turns up with a five-pound note, then the "Old Lady of Threadneedle Street," as the bank is known, will willingly exchange it for... another five pounds.
Something for something, or nothing for nothing, depending on your perspective. With much gravity, the note states an important-sounding but ultimately meaningless commitment from a man in a suit.
U.S. dollar bills are a little more obscure. There's no earthly promise to pay, just a heavenly reminder that "In God We Trust," although which "God" and which "we" is left to the bill-holder's imagination.
This proclamation pretty much covers the U.S. Federal Reserve's collective behind. It seems to say "In the event of any problems, don't blame us, blame your creator."
The euro is even vaguer, containing neither sincere promises nor celestial appeals. Just rather dull pictures of the kind approved by multinational committees of dullards.
Whatever the appeal of physical cash notes, there are clearly those who would like to see them consigned to history, as highlighted in last Saturday's guest essay by Bill Bonner.
Central banks don't like having to print the stuff. Commercial banks don't like having to count it. Governments don't like having their power restricted by it.
What do I mean by that last point? Well, in the same way that offshore tax havens constrain government taxation, waste and corruption, so does physical cash.
But these issues don't mean that various pressure groups won't try to get rid of paper notes from time to time. Yet, even if they do, I'm pretty relaxed about it.
No more Swiss francs? Fine, we'll use euros. No more U.S. dollars? No problem, Canadian ones are just as good. No more Japanese yen? Chinese yuan or South Korean won will do nicely.
Does using foreign cash at home sound unlikely? Perhaps. But it already happens in many countries. Across Europe, the euro is often accepted in stores that are based in non-euro countries. U.S. dollars are accepted in many parts of Latin America, often more readily than local currencies.
When tax rates are highest - which is often at the same time that trust in government is lowest - more and more financial activity opts out of the banking system and into the informal cash economy. In other words, cash provides a check and balance on the power of government.
Cash is a rebel. It does not pledge allegiance to the dictates of government. So we should not be surprised if some governments around the world attempt to eliminate physical cash completely.
There's probably no need to panic. But do pay attention... and beware the government that seeks to eliminate or restrict your access to cash.
Good investing,
Marco Polo
For The Non-Dollar Report
P.S. If you enjoyed today's issue, please check out OfWealth to find similar insights from Marco Polo.
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