Lately, we’ve been hearing a lot about the “death of cash.” I’ve still got some change in my pocket … but who knows for how long?
To paraphrase Mark Twain … no matter how exaggerated reports of cash’s death may be, the truth is that actual physical currency stands between governments and complete control over our financial lives — which means it is under very real threat.
If you doubt that governments around the world have an intense desire to control currencies, consider that Australian police just raided the home of the man alleged to have invented the infamous cryptocurrency bitcoin … for no apparent reason other than to expose and humiliate him, and thereby undermine bitcoin.
Ben Graham Lecture Notes
I recently stumbled across two precious resources about the Godfather of value investing, Ben Graham. The first resource is a collection of notes from Benjamin Graham’s lectures when he was a professor at Columbia University. The notes were taken during lectures given in 1946, six years after the 1940 version of "Security Analysis" was published. Read More
Our view here at Sovereign Investor Daily is that governments want to get rid of cash — including independent cryptocurrencies — for two reasons. First, to eliminate financial privacy and facilitate wealth confiscation. Second, to allow central banks to impose negative interest rates in order to force spending, the final stage of failed quantitative easing policies.
In most real-world cases, however, the reason for cash’s disappearance has been more prosaic: Countries run out of it. Banks don’t have it, so they can’t hand it over to depositors. What happens then … and what can you do to prepare for it?
Cash is one of those love/hate things for us liberty lovers. We want it because it allows us to conduct our financial affairs privately, but we resent it because the government issues it. So today, I forced myself to grapple with what a real-world alternative would look like.
My simple conclusion may surprise you.
Alternative Cashless Futures
A cashless future may look very different to the one over which bureaucrats and bankers salivate, in which government currencies remain the unit of account and we all use plastic and computers to transact.
For example, several alternate systems for payment of goods and services have cropped up in Greece since 2010, when the “Grexit” crisis hit. TEM, a “local exchange trading system,” gives people starter credit that can be used to pay others for goods and services. As people buy and sell on the TEM system, they accumulate credits that encourage further trade and economic activity — all outside the tax net, all without euros.
(Interestingly, a similar system has existed in Switzerland since 1934. Banque WIR issues its own currency, the WIR, that is equivalent to one Swiss franc, but cannot be exchanged for them. It merely acts as an accounting system for transactions amongst its 70,000 small-business and individual members, who trade about $2 billion a year using it.)
Another Grexit-inspired system is the Athens Time Bank, which allows individuals to pay each other with services — from house cleaning to dentist’s appointments. And, of course, there’s good, old-fashioned barter, of which the Time Bank is an outgrowth. You know — I’ll trade you my souvlaki for your ouzo.
Interestingly, two things that haven’t happened in Greece are (a) an uptick in the use of bitcoin and (b) the use of gold.
Bitcoin is stuck because Greeks still have to send euros to a bitcoin exchange to get some, and their euros are tied up in the country’s stricken banks.
And whilst gold is a great store of value and hedge against inflation, it’s not very useful as a means of exchange — ever tried to buy groceries with gold dust?
In the long run, I’m utterly convinced that the decks are stacked against cash — and not just because of government. It’s also a hassle for bankers. For example, the Bank of Ireland recently banned branch withdrawals of less than €700, as well as small check and cash deposits. My South African bank charges a ridiculous fee for cash deposits. Banks would rather gouge us with ATM and card fees than deal with actual money.
That means banks and governments have a mutual interest in getting rid of the stuff. And when those two forces align, watch out.
A Plausible Cashless Future?
It may have the glint of silver. Where bitcoin keeps us stuck in the digital ether, vulnerable to government … and electricity outages … gold is too lumpy, and barter isn’t practical, silver may be the way forward.
Now, as an investment for most of us, silver is a distant second to gold because of the ratio of its value to its size and weight. All other things being equal, it makes more sense to hold gold bullion since the storage cost per unit of value is less.
But as a means of exchange, silver is far more practical than gold. For example, some mints sell 1/10, 1/4 or 1/2-ounce silver coins. An ounce of silver today is about $14.20. That makes it a plausible form of private currency. And for even smaller amounts, innovators like Shire Silver produce credit-card sized laminates that contain fine strands of silver and gold that function as physical cash, but are far more “divisible” than bullion.
Now, I’m speculating here … albeit based on careful reasoning … but my gut tells me that in addition to owning gold to hedge against currency collapse, you may just want to start stocking up on silver too. A couple of sacks of mincoins, one-ounce bars — even junk silver — may stand you in good stead someday.
After all, if all hell breaks loose, it may well be your only ticket to trade.
Offshore and Asset Protection Editor
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