Canada, like the rest of the world, is becoming more dependent on cashless forms of transactions. The ‘war on cash’ which its currently being dubbed has heated up in recent weeks as European countries debate banning high denomination notes such as the 500-euro note and the $1,000 Swiss franc. While, American economist Larry Summers has endorsed the banning of $50 and $100 dollar bills altogether, a cashless Canada is becoming a reality.
Cashless Canada not just U.S. and Europe
In a recent post on Larry Summer’s blog, titled It’s Time To Go After Big Money, he makes his argument:
Canada, like the rest of the world, is becoming more dependent on cashless forms of transactions. The ‘war on cash’ which its currently being dubbed has heated up in recent weeks as European countries debate banning high denomination notes such as the 500-euro note and the $1,000 swiss franc. American economist Larry Summers has endorsed the banning of $50 and $100 dollar bills altogether.
In a recent post on Larry Summer’s blog, titled It’s Time To Go After Big Money, he makes his argument:
“The fact that – as Sands points out — in certain circles the €500 is known as the “Bin Laden” confirms the arguments against it. Sands’ extensive analysis is totally convincing on the linkage between high denomination notes and crime. He is surely right that illicit activities are facilitated when a million dollars weighs 2.2 pounds as with the €500 note rather than more than 50 pounds as would be the case if the $20 was the high denomination note. And he is equally correct in arguing that technology is obviating whatever need there may ever have been for high denomination notes in legal commerce.”
source: http://larrysummers.com/2016/02/16/its-time-to-go-after-big-money/
It should be noted that the Canadian $1,000 bill was retired in May 2000 due to the fight against organized crime. It came following a recommendation by the RCMP, not bankers.
As usual, recommending what American banks should do is not enough for Summers or policy makers. He weighed in on actions the G20 should be making at their future meetings in September:
“Even better than unilateral measures in Europe would be a global agreement to stop issuing notes worth more than say $50 or $100. Such an agreement would be as significant as anything else the G7 or G20 has done in years.”
source: http://larrysummers.com/2016/02/16/its-time-to-go-after-big-money/
Where were these calls to banish higher denominated bills over the past few hundred years? Why now? The reason is likely tied to NIRP or negative interest rate policy that works to erode capital in banking accounts by providing negative interest rates. If citizens store all their money under the mattress or in a safe, it can’t be devalued in a bank. Removing higher denominated notes, makes it inconvenient to transport and store large quantities of cash.
Japan which recently took rates negative has witnessed a rush of its citizens buying safes: Zerohedge wrote about this phenomenon in an article titled Safes Sell Out In Japan, 1,000 Franc Note Demand Soars As NIRP Triggers Cash Hoarding.
Another reason removing $50 and $100 dollar bills from the system could be the misguided hope from the central banks that it will increase the velocity of money. The velocity of money continues to hit new all-time lows. See chart:
Countless studies prove consumers spend more with credit cards and less with cash as the physical separation of funds hurts more than swiping a plastic card that lives in your wallet.
The move to take cash and driving investors into gold and gold stocks as interest rates turn negative. Seeking out the best management teams as this historic bearish period comes to an end is no small task.How does one go about finding the ‘stout’ management teams?
This was the motivation behind our new Ebook at Pinnacle Digest.
Even with the trend to abandon cash fully intact, Summers and members of the ECB such as Draghi feel it necessary to remove these bills from circulation. Check out the trend towards a cashless society in Canada over the past few decades:
As central banks show more of their hand, it is wise to prepare for the scenario of negative interest rates in the coming years. And if your reading this in Canada, forget about using debit or credit, MasterCard has a plan to go beyond cashless, beyond credit less, to simply your face.
That’s right, “Canadian MasterCard holders with smartphones will be able to pay for their online purchases by taking a selfie or stamping their fingerprint on the screen instead of punching in a pin or a password.”
In an article titled MasterCard to bring facial recognition payment software to Canada, biometric payments are explained and explained to be more convenient and secure than pin passwords. The die has been cast in respect to the emergence of a new cashless society in Canada and around the world. It’s just a matter of time.
We wrote about the coming ‘cashless society’ in a post from November of 2014 titled Death of QE, Birth of Cashless Society.
This article represents solely the opinions of Alexander Smith. Alexander Smith is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations.
