by Joseph Young
Governments and central banks are trying to put an end to cash to introduce negative interest rates and actively engage in the development of digital currencies for a simple reason: reduce the anonymization of money.
Despite the falsified claims of economists, banks, and financial institutions, bitcoin is not anonymous by nature. In fact, one can argue that it is the most transparent form of money to ever exist, due to the existence of a decentralized blockchain with which anyone in the network can track down transactions.
Emerging transaction “untangling” solutions have further increased the possibility of discovering initial or original transactions in a chain of bitcoin transactions, which gradually made bitcoin more de-anonymous than it used to be. This trend has also led to the rise in popularity of anonymity-focused cryptocurrencies like Monero.
However, the dominant form of anonymous money is cash, which is widely being utilized to settle fraudulent transactions globally. Harvard economist Kenneth Rogoff has proposed the denomination of bills larger than $10 because the circulation of $50 ad $100 bills encourage criminals in utilizing cash of high value to engage in illicit transactions.
While de-anonymization of money is one of the main purposes for various governments’ attempts to terminate cash, another important aspect that is often left out is how private digital currency networks grant governments and central banks more monetary power than they already have.
By developing a private digital currency network, central banks can create a completely de-anonymous form of money. Moreover, it will make it easier to collect taxes, one reason why the Bank of England is interesting in creating a complimentary digital currency in the UK.
The unified logic behind many governments’ engagement in the proposal of ending cash is, the usage of cash has substantially increased since decades ago. While cash holdings only account for 8 percent of the US’s GDP, this is a considerably higher rate in comparison to the late 1990s and 2000s.
Dr. Scott Summer from Bentley University states that the significance of the increase in the percentage of cash holdings and the voices calling for a phase-out of cash in government and academia helps to explain why governments are so keen to discourage the use of cash. More investors and businesses are starting to eliminate their dependence on cash as a larger number of both central and commercial banks are imposing negative interest rates.
“This is when monetary policymakers began to think about a policy of negative interest on bank reserves — to encourage banks to move the new money out into the economy, where it would boost aggregate demand. But one thing was standing in the way — cash. The zero lower bound, which might, in fact, be closer to negative 1 percent, is the second reason why economists like Ken Rogoff have suggested moving away from cash. In a cashless economy, the Fed could push interest rates as far negative as they wish.” explained Sumner in his recent paper on a cashless society.
Sumner explains the side-effect of eliminating cash would be an increased demand for cash substitutes, whereby increased investor demand would push the price higher for alternatives such as bitcoin, gold, and silver.
Recent efforts of governments and central banks are almost identical to the mindset of the US government amid the Great Depression which ultimately was the first step toward to the end of the gold standard, finalized by US President Richard Nixon in 1971. Theoretically, cash represented an individual’s ownership of gold but that link was severed.
“Gold coin, gold bullion, and gold certificates are now owned by them to a Federal Reserve Bank, branch or agency, or to any member bank of the Federal Reserve Bank,” read the original execution order from 1933.
Could we see history repeat itself, with an imminent end to the circulation of cash? If so, we will witness a new standard of money will emerge, escaping from clutches of governments and central banks: a free market of digital currencies, including Bitcoin amongst others.