War On Cash Escalates: China Readies Digital Currency, IMF Says "Extremely Beneficial"

Tyler Durden's picture




 

Remember when Bitcoin and its digital currency cohorts were slammed by authorities and written off by the elite as worthless? Well now, as the war on cash escalates, officials from The IMF to China are seeing the opportunity to control the world's money through virtual (cash-less) currencies. Just as we warned most recently here, state wealth control is the goal and, as Bloomberg reports, The PBOC is targeting an early rollout of China's own digital currency to "boost control of money" and none other than The IMF's Christine Lagarde added that "virtual currencies are extremely beneficial."

By way of background, as we explained previously, What exactly does a “war on cash” mean?

It means governments are limiting the use of cash and a variety of official-mouthpiece economists are calling for the outright abolition of cash. Authorities are both restricting the amount of cash that can be withdrawn from banks, and limiting what can be purchased with cash.

These limits are broadly called “capital controls.”

Why Now?

Why are governments suddenly so keen to ban physical cash?

The answer appears to be that the banks and government authorities are anticipating bail-ins, steeply negative interest rates and hefty fees on cash, and they want to close any opening regular depositors might have to escape these forms of officially sanctioned theft. The escape mechanism from bail-ins and fees on cash deposits is physical cash, and hence the sudden flurry of calls to eliminate cash as a relic of a bygone age — that is, an age when commoners had some way to safeguard their money from bail-ins and bankers’ control.

Forcing Those With Cash To Spend or Gamble Their Cash

Negative interest rates (and fees on cash, which are equivalently punitive to savers) raise another question: why are governments suddenly obsessed with forcing owners of cash to either spend it or gamble it in the financial-market casinos?

The conventional answer voiced by Mr. Buiter is that recession and credit contraction result from households and enterprises hoarding cash instead of spending it. The solution to recession is thus to force all those stingy cash hoarders to spend their money.

*  *  *

And so now we see China pushing for the early unleashing its own virtual currency, as Bloomberg reports

Issuance of digital currency can help reduce costs, curb crimes and money laundry, facilitate transactions and boost central bank’s control on money supply and circulation, PBOC says in statement on website after concluding a seminar today.

 

PBOC has asked its research team, which was set up in 2014, to study application scenarios for digital currency and strive for an early rollout.

PBOC Statement:

People's Bank of China digital currency seminar held in Beijing. From the People's Bank, Citibank and Deloitte digital currency expert, respectively, on the overall framework of digital currency currency evolving national digital currency, encryption currency issued by the State and other topics of discussion and exchange. People's Bank of China Governor Zhou Xiaochuan attended the meeting, the People's Bank of China Deputy Governor Chair Fan Yifei. Relevant research institutions, major financial institutions and advisory bodies of experts attended the meeting.

 

The meeting pointed out that with the development of information technology and mobile Internet, cloud computing Trusted controlled, secure storage terminal evolution, block chain technology worldwide payment undergone tremendous changes, the development of digital currency is central Bank of currency and monetary policy has brought new opportunities and challenges. The People's Bank attaches great importance from 2014 to set up a special research team, and in early 2015 to further enrich the power of digital distribution and business operations monetary framework, the key technology of digital currency, digital currency issued and outstanding environment, digital currency legal issues facing the impact of digital currency on economic and financial system, the relationship between money and private legal digital distribution of digital currency, digital currency issuance of international experience conducted in-depth research, has achieved initial results.

 

The meeting held that China's current economy under the new norm, explore the central bank issued digital currency has a positive practical significance and far-reaching historical significance. It can reduce the traditional distribution of digital currency note issue, the high cost of circulation, improve convenience and transparency of economic transactions and reduce money laundering, tax evasion and other criminal acts to enhance the central bank's money supply and currency in circulation control, better support economic and social development, the full realization of inclusive finance help. Future, digital currency issuance, circulation system also helps build our new financial infrastructure construction, further improve China's payment system, improve payment and settlement efficiency, promote economic quality and efficiency upgrades.

 

The meeting urged the People's Bank of digital currency research team to actively absorb the important results and practical experience of digital currency research at home and abroad, continue to advance on the basis of preliminary work to establish a more effective organizational guarantee mechanism, to further clarify the strategic objectives of the central bank issued digital currency and do key technologies, multi-scene digital currency research applications for the early introduction of digital currency issued by the central bank. Design of digital currency should be based on economic, convenience and safety principles, and ensure the application of low-cost digital currency, wide coverage, digital currency payment instruments with other seamlessly, enhance the applicability and vitality of digital currency.

 

The People's Bank in advancing digital currency research work with relevant international agencies, Internet companies to establish a communication link with the domestic and foreign financial institutions, traditional card-based payment institutions were widely discussed. At home and abroad to participate in discussions of attention to this work, and related research on expert theory, practice and exploration and development path with the people in the banking system conducted in-depth exchanges.

Which was raidly followed by yet another belessing from The IMF:

  • *IMF’S LAGARDE SAYS VIRTUAL CURRENCIES ARE EXTREMELY BENEFICIAL
  • *VIRTUAL CURRENCIES ALSO COULD BE DESTABILIZING: LAGARDE

The International Monetary Fund extolled the potential benefits of virtual currencies and said they warrant a more nuanced regulatory approach, at a time when the future of bitcoin, the most well-known example, is in doubt.

“Virtual currencies and their underlying technologies can provide faster and cheaper financial services, and can become a powerful tool for deepening financial inclusion in the developing world,” IMF Managing Director Christine Lagarde said in a statement Wednesday to accompany the report.

 

"The challenge will be how to reap all these benefits and at the same time prevent illegal uses, such as money laundering, terror financing, fraud and even circumvention of capital controls.”

*  *  *

However, as we detailed previously. there are three enormous flaws in this thinking.

One is that households and businesses have cash to hoard. The reality is the bottom 90 percent of households have less income now than they did fifteen years ago, which means their spending has declined not from hoarding but from declining income.

 

Median Household Income in the 21st Century 

While corporate America has basked in the glory of sharply rising profits, small business has not prospered in the same fashion. Indeed, by some measures, small business has been in a six-year recession.

 

 

The bottom 90 percent has less income and faces higher living expenses, so only the top slice of households has any substantial cash. This top slice may see few safe opportunities to invest their savings, so they choose to keep their savings in cash rather than gamble it in a rigged casino (i.e., the stock market).

 

The second flaw is that hoarding cash is the only rational, prudent response in an era of financial repression and economic insecurity. What central banks are demanding — that we spend every penny of our earnings rather than save some for investments we control or emergencies — is counter to our best interests.

 

This leads to the third flaw: capital — which begins its life as savings — is the foundation of capitalism. If you attack savings as a scourge, you are attacking capitalism and upward mobility, for only those who save capital can invest it to build wealth. By attacking cash, the central banks and governments are attacking capital and upward mobility.

 

Those who already own the majority of productive assets are able to borrow essentially unlimited sums at near-zero interest rates, which they can use to buy more productive assets. Everyone else — the bottom 99.5 percent — is reduced to consumer-serfdom: you are not supposed to accumulate productive capital, you are supposed to spend every penny you earn on interest payments, goods, and services.

This inversion of capitalism dooms an economy to all the ills we are experiencing in abundance: rising income inequality, reduced opportunities for entrepreneurship, rising debt burdens, and a short-term perspective that voids the longer-term planning required to build sustainable productivity and wealth.

Benefits To Banks and the Government of Eliminating Physical Cash

The benefits to banks and governments by eliminating cash are self-evident:

  1.  Every financial transaction can be taxed.
  2.  Every financial transaction can be charged a fee.
  3.  Bank runs are eliminated.

In fractional reserve systems such as ours, banks are only required to hold a fraction of their assets in cash. Thus a bank might only have 1 percent of its assets in cash. If customers fear the bank might be insolvent, they crowd the bank and demand their deposits in physical cash. The bank quickly runs out of physical cash and closes its doors, further fueling a panic.

 

The federal government began insuring deposits after the Great Depression triggered the collapse of hundreds of banks, and that guarantee limited bank runs, as depositors no longer needed to fear a bank closing would mean their money on deposit was lost.

 

But since people could conceivably sense a disturbance in the Financial Force and decide to turn digital cash into physical cash as a precaution, eliminating physical cash also eliminates the possibility of bank runs, as there will be no form of cash that isn’t controlled by banks.

So, when the dust has settled who ultimately benefits by this war on cash - government and the central banks, pure and simple.

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Wed, 01/20/2016 - 20:25 | 7074818 Soul Glow
Soul Glow's picture

No dorrar for you!

Wed, 01/20/2016 - 20:43 | 7074872 Pladizow
Pladizow's picture

Good game, thanks for coming out Bitcoin!

Wed, 01/20/2016 - 20:45 | 7074909 two hoots
two hoots's picture

“A government big enough to give you everything you want is a government big enough to take from you everything you have.” Gerald Ford

Wed, 01/20/2016 - 21:02 | 7074988 Boris Alatovkrap
Boris Alatovkrap's picture

Boris is concur with inventor of assembly line, if you are not hold in hand, poof, government is take away.

Wed, 01/20/2016 - 21:04 | 7074991 PT
PT's picture

Tempting to open up a Chinese account in LaGarde's name.  And deposit exactly 4 yuan.

Wed, 01/20/2016 - 21:47 | 7075161 espirit
espirit's picture

Fail.

Mass disruptions because of weather conditions.

No power, no problem.

Noise /sarc/...

Wed, 01/20/2016 - 22:20 | 7075286 Rabbi Chaim Cohen
Rabbi Chaim Cohen's picture

I certainly wasn't a fence-sitter on the pandora's box that is digital currency. But if the evils were not obvious to anyone up to this point, this endorsement by the IMF and the Chinese certainly should give you pause.

There's nothing quite like the vehicle which:

"Issuance of digital currency can help reduce costs, curb crimes and money laundry, facilitate transactions and boost(s) central bank’s control on money supply and circulation..."

is there?

Wed, 01/20/2016 - 22:53 | 7075429 MalteseFalcon
MalteseFalcon's picture

So digital currency, NIRP and outright confiscation are implemented.  Of course, no reforms are enacted.  All the savings of the 99% are confiscated.

The economy still won't be going anywhere.

Then what?

Monetize peoples' internal organs?

 

Wed, 01/20/2016 - 23:19 | 7075542 Durrmockracy
Durrmockracy's picture

By the time things get to the point that the state is banning gold, silver, Bitcoin, art, wine, beanie babies... it is game-over for the state anyway.

This is a non-issue.

Thu, 01/21/2016 - 02:38 | 7076015 commander gruze?
commander gruze?'s picture

My thinking exacly. Plus, on the point of Bitcoin, how exactly are they going to control issuance, possession, and transactions in Bitcoin? Of course they can't, so what they're trying to push is THEIR flavour of digital currency - completely unlike bitcoin: centralized, fully controlled, and issued by them. Unfortunately it is enough to put a "digital currency" sticker on it to make average ZH reader establish mental link between this bag of nonsense and Bitcoin.

Here's another perspective on it: Bitcoin *IS* cash, only digital. What IMF has in mind is nowhere near what Bitcoin is.

Thu, 01/21/2016 - 06:42 | 7076288 Acarus
Acarus's picture

Currencies are already virtual, they just don't like Bitcoin because they can't milk everyone

Thu, 01/21/2016 - 08:07 | 7076380 DownWithYogaPants
DownWithYogaPants's picture

Saying "The average ZH reader is not too swift" ....... I disagree.  I read the comments quite a bit and the average awareness level is pretty high.  Of course there are still libtards that are blissfully unaware of how susceptable they are to the Ruling Class Oligarchy's agitprop but what are you going to do?  There are always slow children in a class.

Thu, 01/21/2016 - 08:22 | 7076425 commander gruze?
commander gruze?'s picture

If you're not quoting me directly please drop the quote sign. The reality is that neither ZH nor any other audience is tech savvy enough to fully understand bitcoin. Ironically, this included many bitcoin blogs, fora and news sites. The impact of Bitcoin on society, economy, and governance is yet to be appreciated.

Sun, 01/24/2016 - 00:12 | 7088317 RagnarD
RagnarD's picture

"The reality is that neither ZH nor any other audience is tech savvy enough to fully understand bitcoin."

 

Luckily the comment section here doesn't limit us on space.

Could you please fully educate us?

Sun, 01/24/2016 - 00:13 | 7088318 RagnarD
RagnarD's picture

"The reality is that neither ZH nor any other audience is tech savvy enough to fully understand bitcoin."

 

Luckily the comment section here doesn't limit us on space.

Could you please fully educate us?

Wed, 01/27/2016 - 18:41 | 7080206 Panopticon 131
Panopticon 131's picture

Jefferson is thrashing in his grave.

Wed, 01/20/2016 - 23:52 | 7075652 tmosley
tmosley's picture

Nice one Chaim (first time to use that line literally).

Failing to see the diffeence between a distributed cryptocurrency like bitcoin and a lock-in "currency" like China is proposing is like being unable to tell the difference between sex and getting raped to death by a hoard of rapid pig-men.

Literally no-one but the banks and other powers will adopt this. It will wither and die faster than the shittiest of shitcoins in the altspace.

Thu, 01/21/2016 - 04:24 | 7076123 fredquimby
fredquimby's picture

"Issuance of digital currency can help reduce costs, curb crimes and money laundry, facilitate transactions and boost(s) central bank’s control on money supply and circulation..."

is there?

If they are talking about their own issued cypto then the above is true. But not so if you don't play their game and use their currency.

 

Wed, 01/20/2016 - 22:06 | 7075228 Crawdaddy
Crawdaddy's picture

Der that quote was from Harrison Ford

Thu, 01/21/2016 - 12:23 | 7077616 EINSILVERGUY
EINSILVERGUY's picture

That is either extremely funn, sarcastic or loony.

I think that was Thomas Jefferson not Gerald Ford

 

Wed, 01/20/2016 - 20:45 | 7074912 Buckaroo Banzai
Buckaroo Banzai's picture

Um...wrong. Exactly the opposite, in fact. Nothing validates a new product like competition. And the fact that it is government competition is an even bigger validation, considering that the whole point of Bitcoin is to cut government out of the deal.

Wed, 01/20/2016 - 20:58 | 7074960 Pladizow
Pladizow's picture

And you think China will tolerate monetary dissonance?

Wed, 01/20/2016 - 21:09 | 7075011 Troglodyte Erudite
Troglodyte Erudite's picture

No kidding, control is the name of the game.  Like their new credit score, you get a lower score if you are linked to those that speak out, therefore you self sensor.

 

OT, anyone remember this song back in about 1987 or 1988?  First time I heard it I was young and dumb in Brasil.

Desireless - Voyage Voyage 1987 Here is the new version by Kate Ryan: https://www.youtube.com/watch?v=XT9IDo-vF5k

I have to say I like the newer version better.

Wed, 01/20/2016 - 21:11 | 7075012 Buckaroo Banzai
Buckaroo Banzai's picture

My take is, if the Chinese thought that they could stop BitCoin, they would have done it already. Remember those anti-Bitcoin threats the Chinese government attempted a few years ago? That didn't really work out for them. So they went back to the drawing board, and eventually discovered that short of shutting down the internet, they were never going to be able to beat BitCoin.

Which then led to the inevitable conclusion: if you can't beat 'em, join 'em.

It makes sense. For starters, you can use your shiny new BitCoin competitor as a weapon against your financial enemies. The Chinese would love nothing better than to help US citizens figure out ways to avoid using the dollar.

And, you give your own people a state-sanctioned alternative to BitCoin, which will draw resources and attention away from BitCoin generally.

BitCoin will still get used in non-state-sanctioned ways, but at least this way, they can better manage their BitCoin liabilities by getting hands-on experience in the space.

 

Wed, 01/20/2016 - 21:38 | 7075125 willwork4food
willwork4food's picture

Good points. That or the "bitcoin" experience was a clever deep state invention to get people on board.

Wed, 01/20/2016 - 22:48 | 7075409 Durrmockracy
Durrmockracy's picture

I have yet to hear one single piece of credible evidence to support the notion that Bitcoin is some secret conspiracy orchestrated by the state or central bankers.

Not one.

 

Wed, 01/20/2016 - 23:15 | 7075518 aminorex
aminorex's picture

Doesn't matter.  It is so trace-able and link-able that it is a tool of surveillance and control no matter who designed it.  That' s why people who understand that money needs to be fungible and people who value privacy (without which there can be no freedom) use Monero's ring-signature technology for their transactions.

Thu, 01/21/2016 - 00:51 | 7075818 Government need...
Government needs you to pay taxes's picture

Using digital currency is, given the state of current technology, playing a rigged game.  At least one can wipe one's ass with it and physically possess the paper.  Possession is 9/10ths of the law.  This is an important consideration when the rule of law deteriorates.  Assets you possess are assets . . . risk assets, but assets nonetheless.  'Assets' that exist as digital 1/0s?  That's not an asset, that's a video game.  Cash is a shitty thing to hold right now, but it's a fuck ton better to hold cash than a digital currency.  One EMP, a big power outage, YOU ARE FUCKED with digital currency.  As we enter stranger, more 'interesting' times, I suggest striving to own farmland and the means to produce one's own meat and veggies.  Precious metals and colored gemstones are decent, a little fiat, and productive assets.  Learn to weld, learn to farm, learn to fix stuff.  Buy a tractor, buy a truck, learn the rudiments of construction, including plumbing and electrical work.  Buy guns, learn to use them.  And of course, always remember your best tool is your brain.  Use it.  ALWAYS. 

Thu, 01/21/2016 - 02:45 | 7076025 commander gruze?
commander gruze?'s picture

Jaysus, not this sort of boring nonsense again.

Bitcoin guarantees possession by the laws of mathematics. Those, unlike man made laws can not be broken. The rest of your diatribe is irrelevant.

Thu, 01/21/2016 - 08:41 | 7076465 Oldwood
Oldwood's picture

Thats really funny, you thinking a digital currency will save you from the power of government. Our currency IS NOT THE PROBLEM.

GOVERNMENT IS THE PROBLEM of which there is no real escape.

Thu, 01/21/2016 - 02:47 | 7076027 PT
PT's picture

If you can afford to buy all that stuff then you have already "won".  Most people will take years just to accumulate the land ... IF they are LUCKY.  Grow food on any land available is the only game the majority has any hope of playing.  Step 2 would be to kill anyone who tries to destroy that food (assuming it is grown on public land, not your next-door-neighbour's front lawn).  They destroy your food?  They're threatening your life.  They owe you.  Not practical?  Then you were going to starve anyway.

Accumulate skills - good idea.
Buy gold and silver - once you have food, otherwise in a SHTF situation you'll just swap your gold and silver for food, and you'll never see the benefits of PMs returning to their true value.  Don't matter what it is really worth, if you are desperate then you'll get nothing for it.  Ask anyone who works in a pawn shop.  Learn to haggle.  May as well learn to beg.  Begging is just like haggling, except you have nothing to put on the table.  Or in stockbroker-speak, begging has infinite ROI.

Thu, 01/21/2016 - 04:29 | 7076132 fredquimby
fredquimby's picture

otherwise in a SHTF situation you'll just swap your gold and silver for food,

Get a few 1000 round boxes of .22LR ammo stashed away if you want readily usable currency in a SHTF situation.

Wed, 01/20/2016 - 23:26 | 7075565 Haole
Haole's picture

That's because there is none.

Wed, 01/20/2016 - 22:12 | 7075250 Crawdaddy
Crawdaddy's picture

Bitcoin IS state sanctioned. Right now it is in honey trap mode to lure in all the people who still are naive enough to believe bitcoin is the rebel attack ship to darth vader's death star. The rebel ship known as bitcoin is a bought and paid for masquerade, courtesy of Vader's handlers.

Wed, 01/20/2016 - 23:08 | 7075489 Silver Shield
Silver Shield's picture

Bitcoin was a test for the mark of the beast.
Buy silver and avoid the inevitable drama.

Wed, 01/20/2016 - 23:09 | 7075499 Durrmockracy
Durrmockracy's picture

Got any evidence?

Wed, 01/20/2016 - 23:24 | 7075559 Haole
Haole's picture

Well, considering he told people on his YouTube channel to literally sell everything they own and buy silver in 2011 (wonder how that worked-out for them), I'd say his credibility with regards to Bitcoin is 0 at best.

Wed, 01/20/2016 - 23:35 | 7075598 Durrmockracy
Durrmockracy's picture

In Chris's defense... the economy could have collapsed at any point between 2008 and now.  So I still think buying gold, silver was a good call... I was buying silver at $38 and have no regrets.  But being an expert on silver and currencies doesn't make you an expert on computer science, distributed computing, cryptography, etc...

Wed, 01/20/2016 - 23:52 | 7075637 Haole
Haole's picture

Which is why Chris, A. Hoffman and anyone else that knows jack about Bitcoin should really keep their lunatic mark of the beast government coin BS to themselves because it's nonsense.

Mike Hearn just left XT development in a huff to go work with banking consortium R3 to create Bankcoin.  There's your centralized mark of the beast.  There's your digital mark of the beast if there will be one but naturally Chris doesn't know enough to make a distinction like that.

To this day I'm astounded why libertarian-minded people reject BTC so adamantly, it actually makes no sense given that it's the perfect complimentary currency to money.

Thu, 01/21/2016 - 00:34 | 7075771 Durrmockracy
Durrmockracy's picture

I am glad that Hearn is gone, I was amused by his pouty exit letter "Waah!  Waah!  I couldn't turn Bitcoin into a shitty Google+ App so you are all DUMB and now I am leaving!"

Thu, 01/21/2016 - 04:31 | 7076135 fredquimby
fredquimby's picture

Who?

 

Thu, 01/21/2016 - 09:01 | 7076518 Hobbleknee
Hobbleknee's picture

All you need to know is nobody will take credit for inventing bitcoin. Satoshi Nakamoto denies that he invented it. Its very inception is controversial and a mystery.  So go ahead, if you don't see the danger of every purchase you ever make being saved in a public register, load up on your fantasy coins that only exist in cyberspace.

Wed, 01/20/2016 - 23:54 | 7075659 tmosley
tmosley's picture

Says the guy with his social security number tattooed on his forehead.

Wed, 01/20/2016 - 20:25 | 7074819 JoeTurner
JoeTurner's picture

Credit/debit cards will be the digital currency of choice, not Bitcoin

 

Here's why:

http://afterbubble.com/is-cash-obsolete/

Wed, 01/20/2016 - 20:35 | 7074859 Hugh G Rection
Hugh G Rection's picture

I think the Jews are just going to jam RFID chips up our asses and any bad goy that doesn't comply with the chosenites gets their chip turned off.

Wed, 01/20/2016 - 20:45 | 7074906 Pladizow
Pladizow's picture

Have any original thoughts?

Wed, 01/20/2016 - 20:58 | 7074969 Father Thyme
Father Thyme's picture

Never with a Hugh G Rection.

Wed, 01/20/2016 - 21:06 | 7074999 Hugh G Rection
Hugh G Rection's picture

Glad you asked!

I'm going to start a company selling bacon shaped like foreskin.  Shoah me the money!

Wed, 01/20/2016 - 21:39 | 7075132 willwork4food
willwork4food's picture

You guiys never cease to crack me up. Who needs SNL?

 

Wed, 01/20/2016 - 21:01 | 7074983 Bunga Bunga
Bunga Bunga's picture

So how can I pay a friend with a credit/debit card?

Do NOT follow this link or you will be banned from the site!