Last month, the calls for a cashless society got a bit louder when Peter Bofinger, a member of the German Council Of Economic Experts and a prominent Keynesian economist in a land where sound money policies generally predominate, called coins and bills “an anachronism” that limits the influence of central banks. Bofinger’s comments come on the heels of a growing chorus of cash abolitionists including Harvard economist Ken Rogoff and Citi’s Willem Buiter. Why a cashless society you ask? Here’s a brief refresher:
The collective actions of the world’s most influential central banks have done wonders when it comes to inflating asset bubbles but have done very little to revive robust economic growth. In fact, far from smoothing out the business cycle and resuscitating DM demand, post-crisis monetary policy has actually had the exact opposite effect: it has set the stage for an even more spectacular collapse while simultaneously creating a worldwide deflationary supply glut. At this stage, a sane person might be tempted to call it a day on the monetary experiments, especially considering that the limits have been reached. That is, there are literally no more assets to buy and rates have hit the effective lower bound where rational actors will eschew bank deposits in favor of the mattress. But not so fast. The world could always ban cash because if you eliminate physical currency and force people to use a debit card linked to a government controlled bank account for all transactions, you can effectively centrally plan everything. Consumers not spending? No problem. Just tax their excess account balance. Economy overheating? Again, no problem. Raise the interest paid on account holdings to encourage people to stop spending.
On the heels of Bofinger’s comments we said the following: “Paging Mr. Weidmann, your countrymen are going Keynesian crazy.”
Lo and behold, Weidmann has indeed entered the debate and unsurprisingly, he is not a fan of the cash ban calls. FAZ has more (via Google translate):
Bundesbank President Jens Weidmann has advocated that cash despite technical innovations and digitization should continue to play an important role in payment transactions. "The Bundesbank does not believe to abolish the cash," Weidmann said on Monday in Frankfurt at the biennial held payments Symposium of the central bank. On the one hand, every citizen should continue to pay as he wants - "So cash or cashless" argued Weidmann. Secondly, monetary policy would be reasons that may be brought against the adherence to the cash, "standing on feet of clay."
By its second justification Weidmann resorted to the last often raised by critics cash-argument, in a world without cash monetary policy would work better. Underlying this is the idea that savers react to negative interest rates of the central and commercial banks, by removing their money from accounts and keep in the form of cash. If there were no cash, the negative interest rates would direct impact on the accounts of depositors. Because they can not just withdraw your money, they would consume more and invest instead - and thus stimulate economic growth.
Weidmann contradicted this argument sharp. On the one hand, a moderate negative interest would not necessarily "lead flight to cash" to.On the other hand - and this is much more important - going discussion on "real problem" over. The control and capital market interest rates are due to the subdued growth prospects "and a subdued inflationary pressures in the foreseeable future" at a low level. The expansive monetary policy of central banks is to be understood as a reaction to it. So the most important task was to tackle the cause of the weak growth in the euro area. "So if the weak growth is the crux of the problem, then it is necessary to overcome this weakness, rather than to operate daring acrobatics in the form of wanting to do away with the cash, so that the monetary policy seem even more expansive and cover long-term structural problems in the short term with cheap money can "Weidmann said.
So once the Keynesian cabal gets its way and abolishes cash, effectively weighing the anchor on negative rates and thereby making it possible to manipulate not only macroeconomic outcomes, but microeconomic ones as well, it appears those who still value their right to choose for themselves how and when they spend their money can at least move to Germany where Bubba will make one last stand against the insidious Peter Pan crowd.