Printed freedom

Philipp Vorndran

Leading economists are discussing whether it makes sense to eliminate cash, or at least limit it, in order to prevent terrorism, illegal employment and tax evasion. We should not allow ourselves to be misled. The proposal is actually based on quite different considerations, Philipp Vorndran, Capital Market Strategist at Flossbach von Storch explains.

Anyone who has read the business section of the newspaper in recent months has undoubtedly encountered the topic of cash, or rather its elimination. “We have often reported in the past that we are increasingly wondering whether politicians and central banks might decide to limit or completely eliminate cash in the not too distant future,” says Vorndran. “I admit this initially sounded highly audacious. All of us have been socialised with notes and coins. Everyone knows the saying “cash is king” and its meaning. Eliminating cash would be completely unthinkable – or would it? Anyone who has followed recent economic and financial history carefully has undoubtedly long become aware that established wisdom is quickly discarded in times of crisis – faster than one could have imagined – and that the certainty and promises of yesterday are already superseded today. As a result, “think the unthinkable” has become a kind of motto for us,” he says.

It did not, in fact, take long before the discussion about the future of cash had reached major media outlets. “The reasons for limiting cash are quickly listed in many newspaper articles: combating terrorism, because international payments can be monitored much more easily, and helping to prevent illegal employment and tax evasion. A leading German economist stated that making cashless payments at the supermarket saves a great deal of time. I, on the other hand, feel that paying with a bank card is no faster when one takes into account the time needed to enter a PIN or sign the payment receipt. We should not allow ourselves to be misled,” says Vorndran.

Completely different arguments are much more important in the debate than preventing terrorism or illegal employment. Eliminating or limiting cash ensures that savers are unable to avoid negative interest rates, because they can no longer withdraw their money from the bank and place it in a safe at home or under the mattress. This would allow financial repression to be imposed, since negative interest rates could be easily introduced across the board.

“There is, however, another argument that should not be neglected in the discussion. One of the reasons for eliminating cash is the belief that this could protect the financial system. What do you think a Greek saver would do if he believed that the drachma would be reintroduced overnight, causing his savings to fall dramatically in value? He would run to his bank, withdraw all of his euros and attempt to take them across the border. Millions of his fellow citizens would try to do the same, and the Greek banks would collapse.”

“We are following the discussion carefully. In our opinion, the true reasons have little to do with preventing terrorism or illegal employment or even increasing the efficiency of purchases – these are just a pretext. The other reasons appear more important to us. We hope that sufficient liberal forces exist in governments and central banks to put an end to such plans. Cash is nothing other than printed freedom – and this freedom would be lost,” Vorndran warns.