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Burning Banknotes !

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There are some out there in the economic world that believe that banknotes are detrimental to the health of the economy and that they are currently stifling the recovery of the markets. Their solution: burn the damn things and let them go up in smoke. Replace them with electronic money and then the central banks around the world will be able to do more than just providing alternatives that don’t work to revamping the financial markets and boosting economic growth.

What have central banks been doing these past few years? Nothing of much worth. They have tried Forward Guidance. They have thought up great ideas so they didn’t have to use negative interest rates to try to get the markets working such as Quantitative Easing, injecting billions every month into the economies around the world. It still didn’t get the banks lending and it still didn’t get them working and creating jobs. It just gave them the possibility of investing and gaining dividends and returns on that investment.

Burning Banknotes

Burning your banknotes could be the solution to that. Patrick Artus at Natixis believes that if we were to do that, then central banks would be able to act effectively. He says, taking the example of the situation in the European Union that the banks in the north that have their coffers filled are just not lending to those in the south that are in dire straits. The European Central Bank is now charging (since June 11th 2014) at a rate of -0.1% for banks to park their money at the ECB.

The ECB will not stimulate anything however. Simply because banknotes and tangible money exist. What do people do when interest rates are low? And when interest rates are negative? In theory, they withdraw their money and spend because it’s not gaining enough in value just sitting there.

Except, Artus argues that a 100 euro banknote, like all banknotes, has a 0%. Withdraw it and keep it and it won’t increase or decrease in value. It will still be worth 100 euros in a year. That’s worrying in countries like the USA where the percentage of cash in circulation at the same time stands at roughly 14% of the entire money stock of the country. Negative interest rates will just make people (and the banks) hold on to their money. If you are going to use negative interest rate, then they have to be used throughout the economy, for banks and for customers of those banks. Want people to spend? Apply negative interest rates everywhere, but, then you have to get rid of tangible money.

Of course, there’s the added bonus of getting rid of notes in as much as tangible money costs money (and a lot of it) to make it perfectly unique and impossible to copy (laugh!). The Europeans have banknotes that they use for transactions everyday (5, 10, 20 and 50 euro banknotes). They also have notes that they never or rarely use (100, 200 and 500 euro banknotes). Apparently, they had the 500 note just to placate the Germans and keep them quite since they were losing the 1000 mark banknote that they had. But also, the 500note has the nickname ‘the Bin Laden’ since they make fraud easy. These banknotes that are hoarded outside of banks are estimated in Europe to represent 50% of all banknotes in circulation (948 billion euros is the total stockpile of all euro banknotes in circulation in April 2014). The 500 euro banknote is 30% of all banknotes in circulation and never used in daily transactions by Europeans. Getting rid of banknotes is supposedly going to cut the Bin-Laden effect on money and its trafficiking. But, the fraudsters and the mafia will just go to Bitcoins or their like.

So do we burn or don’t we?

All of this won’t be worth the tantalizing attractiveness it seems to portray unless the whole world does the same thing. The likelihood of the entire world agreeing to get rid of banknotes at the same time and going electronic would be a trillion to one chance. We have just about as much chance of Vladimir Putin saving President Obama from drowning (if you remember his laughable newspeak just a few months ago now). Theories are nice, but they never seem to take into account the parameters of impossibility, do they? Still, it occupied a researcher somewhere in the world for a while, didn’t it?

Ready to burn your banknotes?

Originally posted: Burning Banknotes !

 

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Wed, 07/02/2014 - 06:16 | 4916959 Bemused Observer
Bemused Observer's picture

This is nothing more than some central planners wet-dream. And they can dream it all they want, it would be impossible to do. In this country at least, there are a significant number of people who would NOT use digital 'currency'. In fact, there are a growing number who are decreasing their online presence, and the kinds of transactions they do online, due to increasing privacy and security concerns.
Of that group, there are a hardcore group who would resist more openly, and that resistance would get violent.
Your conspiracy theorists would go ballistic, and find an audience more ready to listen.
Tax collection would become problematic, and what do you do with the ones who aren't online in any meaningful way, and will simply refuse to do so? (Christians will shun it as 'mark of the beast' and all that, that's a religious objection and TPTB will NOT be forcing that group, trust me. Those folks are on such a hair-trigger right now, and they know it.)
Your militia-groups would have a recruitment orgy, as people already mistrustful of government would see it as a huge power-grab and join groups with hard anti-government agendas.
There are too many small, daily transactions between people like yard sales, or I sell you my lawnmower, etc., that require physical money, you're talking millions and millions of these transactions daily.
You'd basically have two economies...one, the official online one, in which fewer people would be participating. And the other would become the 'real' economy where people conducted most of their personal and unofficial business. And where there'd be no way to track or control activity. Tax collections would dry up, and how do you seize financial assets if they are offline? Go door-to-door? I don't THINK so, not in a country of 350 million who may be heavily armed and very pissed-off, unless you are stupid and have a death-wish.

So sorry Bitcoin people, it's all just mental masturbation. It ain't gonna happen.

Tue, 07/01/2014 - 01:24 | 4912947 KingTut
KingTut's picture

Paper cash and bank credit money are entirely different systems of money.  We consider them equivalents because their values are identical.  But they are different even intheir physical forms.  Paper money has a serial number and is tangible; you can hold it in your hand. The money in your bank account is not tangible; it is just a number in a set of "books" that aren't books at all, but files on a computer.  If you have more money in your account there isn't more of anything in the computer, only a few bits change.

And, their values aren't identical, either.  Some businesses don't take credit cards, only cash. Sometimes you pay less with cash than with a card.  Cold hard cash can often get you a discount if negotiate for it.  paper money from a bank (a check) is often not accepted at all. Their values shift at the margin because they are not the same kind of money.  paper money is backed by the government, which won't close during a bank holiday.  Banks don't have money in them, only credit, unless they have some cash in their vault.  The government will always accept dollars, but will reject a check drawn on a failing bank.

Consider what would happen in a banking holiday.  Your credit cards would not work, you debit cards would not work and your ATM card would not work. Pre-paid cards might work because you're dealing directly with VISA or MasteCard which are not banks.  Checks would definitely not be accepted, no matter how much "money" you have in your account.  No one will care.

Whip out out a crisp $20 and you will still be able to buy your groceries.  In fact, cash will become more valuable as the bank holiday goes on.

So you see paper money is profoundly superior to bank credit.  That's why they want to get rid of it: it threatens the banking system in case of a squeeze.  If everyone tried to convert their bank credit money to paper dollars, first the paper money would run out in the first ten minutes.  The government would have print tons more money to keep the two money systems aligned.  But then the banks would fail. To keep alid onthe panic, they would have to A LOT of money.  In fact, just to keep up they would have to increase denominations.  As the panic spreads they'll print more and more bigger notes.  That's hyperinflation.  The bank credit money has been repudiated in favor of paper money.  

Eventually, there will be so much paper money it too will become worth less, and people will trade it for hard assets, which in turn drives up those prices.  Now you're in a full blown paper money hyperinflation just like Weimar and Zimbabwe. 

That's why they want to burn all the paper money: its the exit door on the burning theater.  Its the ONLY way out when this sucker goes down.  They want us all to go broke together: nobody gets out.


 

Mon, 06/30/2014 - 19:45 | 4912030 Peak Finance
Peak Finance's picture

I would LOVE for money to go away overnight and become fully digital.

The local economy is already going "grey" and it would instantly go to using silver coins, gold coins, and barter for underground services if the dollar went electronic.

I could see central banks doing this to try to re-assert further control over us, but it would backfire right away on them and hasten their demise.

 

 

Mon, 06/30/2014 - 18:59 | 4911817 Turin Turambar
Turin Turambar's picture

Actually, with a little modification, there is a viable solution here:

 

Burn BANKSTERS.  There.  That'll fix the problem.  Guaranteed!

Mon, 06/30/2014 - 18:58 | 4911815 Unique Snowflake
Unique Snowflake's picture

I suggest burning the central banks instead.

Mon, 06/30/2014 - 18:42 | 4911759 cynicalskeptic
cynicalskeptic's picture

And if you have a bar code tattooed on your forehead you won't need a debit card......

 

Governments profess to hate CASH because they CAN'T TOTALLY CONTROLL IT.   

But the Mob, drug dealers, CIA, NSA and others LOVE it BECAUSE it can't be totally controlled.

Big secret - the US Treasury LOVES all those billions in cash held by drug dealers and others involved in illegal commerce - as well as the dolalrs hidden in safes and mattresses world wide - they're like T-Bills you don't have to pay ANY interest on.  God forbid the time comes when people no longer trust the US dollar and don't want to hang on to them.

When those dollars come rushing back to the US to be exchanged for ANYTHING of real value you'll see inflation that would make Weimar Germans cry.

Mon, 06/30/2014 - 18:35 | 4911725 cro_maat
cro_maat's picture

Burning banknotes will destroy one of the "dollar" global reserve legs: illegal drug and arms trafficking which the CIA controls and enforces via the Heroin Dollar. The CIA and the FED are aligned on this and won't let it happen unless they have the next stage of the Ponzi set up.

Mon, 06/30/2014 - 18:31 | 4911702 AdvancingTime
AdvancingTime's picture

How much this has to do with Main Street and the real economy is questionable. Modern Monetary Theory often referred to as MMT to its many believers removes much of the risk ahead and guarantees that we will always be able to muddle forward. MMT also known as neochartalism is a economic theory that details the procedures and consequences of using government-issued tokens and our current units of fiat money.  Newly acquired tools like derivatives and currency swaps  allow us to print and  manipulate away problems.

While reading an article about the growth of debt in China's non-financial sector I was forced to reflect on how debt is effected by the interest rates. In Europe the ECB had to step in to halt the economic collapse of Spain, Italy and several other countries that were on the brink. What you pay in interest on debt does matter except in the manipulated land of MMT. Have we been lulled into complacency by the extraordinary actions taken by central banks and governments over the last six years? This is a key question we must face. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/01/have-we-been-lulled-into-complace...

 

Mon, 06/30/2014 - 17:57 | 4911518 ThroxxOfVron
ThroxxOfVron's picture

Burning leaves doesn't make leaves more or less valuable.  

The intrinsic value proposition is either pertinent to the subject or it is not.

Mon, 06/30/2014 - 20:41 | 4912238 Cap Matifou
Cap Matifou's picture

The Czar era paper money was over a decade long inofficial money in bolshevik infested ole Russia. While the central planners' devalued money was rejected, the old currency was hotly seeked. All that for a reason, because there was nobody around to print more of latter, and dilute it's value.

Mon, 06/30/2014 - 17:15 | 4911321 logicalman
logicalman's picture

When it's all electronic, Joe Public is FUCKED, not to put too fine a point on it.

Wed, 07/02/2014 - 09:27 | 4917398 Bemused Observer
Bemused Observer's picture

It can't go all electronic, the whole notion is totally unrealistic. People will simply refuse, and government will not be able to collect taxes on all the economic activity that would be occurring outside the system. They would have to maintain two currencies, the official online one, and the vast and growing underground economy, which they will HAVE no control over. They can't even manage the one we have now. So, it's like the driverless car...interesting discussion, but not realistically likely.

Mon, 06/30/2014 - 17:11 | 4911306 0b1knob
0b1knob's picture

It has become necessary to destroy the currency in order to save it.

Central banks have now officially gone full retard.

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