The Reason Cash is Disappearing

Last week we wrote of the huge demand for privately held gold being put into vaults around the world and essentially ‘disappearing’ from official records that can only account for the financialised accounts such as ETF’s and the like.

Last week, with little warning, the first Senate inquiry into the proposed cash ban was held and didn’t exactly go to plan for the government as they heard some very compelling testimony from respected sources including their own small business ombudsman querying the need and raising the unintended negative consequences of banning cash.  For a great summary, Nuggets News interviewed CEC’s Robbie Barwick here.

This comes as reports reveal it is not only gold that is disappearing into the vaults of the wealthy but cash as well.  From the Wall Street Journal:

“Some Australians are burying it. The Swiss might be hiding it. The Germans are probably hoarding.

Banks are issuing more notes than ever and yet they seem to be disappearing off the face of the earth. Central banks don’t know where they have gone, or why, and are playing detective, trying to crack the same mystery.”

The report goes on to highlight the extent to which money has been printed into existence and then unaccountably hoarded.  For example the US has expanded its cash in circulation by an incredible 41% in just the 6 years since 2013 to $1.7 trillion.  $1.3t of that is in $100 notes.  And where is it?

“A Federal Reserve economist, Ruth Judson, wrote in a 2017 paper that about 60% of all U.S. currency, and about 75% of $100 bills, had left the country by the end of 2016 — for a total of about $900 billion in U.S. dollars kept overseas. Socking those bills away provides some protection against economic turmoil, especially in countries with a record of instability in their own financial systems, the paper said.”

Its not just the US.  Examples include:

Australia

- Bank notes on issue is near the highest it’s been in 50 years relative to GDP.  The equivalent of $2000 per Australian.

- RBA estimates 25% is used in daily transactions, 8% in ‘shadow’ cash economy, 10% lost and the rest, over 50%, as a store of wealth “in safes, under beds and at the back of cupboards, both here in Australia and elsewhere around the world,” (RBA Governor Philip Lowe)

Switzerland

- The SNB found that demand for high denomination notes “tends to rise when interest rates are low, households feel distrustful of the banking system”

- Hoarding jumped in 2000 on fears of Y2K disrupting digital payments and banks, the bursting of the dot.com bubble, September 11 and introduction of the Euro.  It then went up another level with the GFC.

Germany

- Estimates $150 billion of notes are being hoarded

New Zealand

- Can only account for 25% of their issued notes

- Since tourism overtook dairy as the number one economy they found a third of their notes headed overseas in 2017.

Indeed NZ’s RBNZ confessed “Our sense is that we’re in the same boat as a lot of other central banks out there….We can’t fully explain why holdings of cash are rising and where they are going.”

There are a couple of underlying issues here to note.  As the Wall Street Journal article noted:

“Bankers aren’t just hunting down cash to satisfy their own curiosity. If central banks don’t know how much cash is out there, they could print too much currency and risk inflation.”

The eye watering amount of new money created since the GFC has largely been digital not notes, but it speaks to the same concern.  Normally expanding money supply by that much would see rampant inflation.  All it’s done is inflate financial assets not the CPI basket.  The danger is they go too far and lose control and hyperinflation happens as we’ve seen recently in a number of countries.  That means the hoarded cash gets very quickly eroded in value.

It also highlights the flight to safe assets ‘outside the system’ as the wealthy can see what’s coming.  In an environment where you are getting next to nothing for your unsecured bank deposit, why risk it?  Stripping back the nonsense reason of tackling the black economy, therein lies the truth behind the governments proposed cash ban.  They want you in the system.  Indeed in our fractional reserve banking system, they NEED your cash in the system as we explained here.

2019 at Ainslie has been notable for the huge amount of high-net-worth money getting out of banks and into gold and silver for that very reason.  There is deep concern about the stability of our banks and the agenda of our government to trap us in digital fiat currency as unsecured creditors of those banks.  The alternative of real money, real gold and silver, has never been more compelling.