by Joseph Young
A global war on cash has begun, as many countries have imposed heavy capital controls and have placed restrictions on fiat money. The increasing control of the authorities over traditional forms of money is pressuring investors, traders, households, and businesses to look for alternative safe haven assets like gold and bitcoin.
Over the past few months, an increasing number of leading economies, central banks and governments have imposed strict currency controls and asset regulations to prevent the devaluation of their national currencies, to crackdown on criminal organizations and to eliminate the presence of cash. Despite their efforts, none of the initiatives demonstrated positive outcomes for the general population that is struggling to finance daily operations.
Three countries, India, China and Venezuela, were victims of heavy criticisms this week from financial experts, analysts and investors as their strategies to enhance the economy have backfired and led to even more chaos for businesses, workers, and households.
The Chinese government, for instance, slashed the withdrawal limit of ATMs in Macau by half, meaning China UnionPay network customers can only withdraw $626 daily, effective as of December 10.
The Australian government is also considering taking the A$100 banknotes out of circulation. Kelly O’Dwyer, Revenue and Financial Services Minister, stated that the move was established to recover billions of dollars in taxes, stating, “The whole point of this crackdown on the black economy is to make sure we close down any potential loopholes.” An expert panel will advise the Australian government on what action to take, although O'Dwyer did not rule out imposing a limit for cash transactions, such as mirroring the €1,000 limit in France.
Furthermore, countries like South Korea and Denmark have begun to examine digital networks and blockchain-based systems to replace their current fiat-based monetary systems. The Danish government, and its central bank in particular, have announced their intentions to examine the use of an e-Krone, a digital version of the Danish krone.
The Danish central bank further noted that it will outsource its cash production in 2017, but believes cash is no longer needed and should not be in circulation as only 20 percent of the population uses cash. This also means that 80 percent of the population that holds money in the central bank or other commercial banks will not be able to recoup their money. Essentially, they are holding an IOU in the banks, which soon will be able to produce an unlimited amount of the e-Krone to support the economy.
“Cash and notes are not an alternative to electronic payments. We went beyond that many years ago,” said governor Lars Rohde, implying that the bank has begun to consider having a digital form of money as the national store of value.
The digitalization of money is inevitable and analysts have predicted it to come to fruition by the end of 2020. However, as Shaun Bradley, an author at AntiMedia.org stated, private blockchains or digitalized financial networks are dangerous as a significant level of trust and dependence exists between the service provider and users.
“The greatest threat to individual freedom is financial dependence, and as long as your wealth is under someone else’s control, it can never be completely secure,” said Bradley.
Thus, while digital forms of money or networks will most likely replace cash in the short term, decentralized and independent networks and protocols like bitcoin should be considered as the global currency, rather than private and permissioned digital systems of banks that will have full control over people’s wealth.
As banks continuously hinted the formation of digital financial networks and elimination of cash, investors, traders, businesses and individuals have been responding by showing increasing interests in safe haven assets like bitcoin and gold.
Physical assets like gold, however, can be seized, taxed and confiscated, as seen in India lately. Because of this precedent for the limitation of physical stores of value, the demand for bitcoin has surged in most countries, pushing its price to a three year high. Another beneficiary has been silver.