In their latest report: “Eliminating cash will also eliminate the checks and balances on banking policy and practice”, Stefan Wieler and Josh Crumb from GoldMoney Insights™ show with comprehensive data that eliminating the largest bank notes in circulation is as good as eliminating cash altogether. It becomes evident: fighting crime is not the main goal of a phase-out of large bills. By eliminating cash, important checks and balances for commercial and central banks will disappear.

The war on cash is accelerating with the likelihood of the ECB firing the first shots and eliminating the EUR500 note. At the same time, former Treasury Secretary Larry Summers is promoting to abandon the USD100 bill. Our latest find is a video that shows how to stack a million dollar in $100 bills in a suitcase. You know, one of those used in Miami Vice. The video ran up and down Bloomberg all day yesterday. The story that supports the attack on cash is everywhere the same: Large bills, so they say, are used predominately by criminals. Eliminate the large bills, eliminate the problem. Interestingly, the fiercest advocates for a phase-out of cash are all lifelong economists. They have spent their entire career analyzing interest rates, currencies and other economic parameters. Most of them are not experts on crime. It would be much more credible for the recent push to phasing out cash to come from people that are experts in the field rather than economists with a very different agenda. What becomes evident when going through the academic papers and op-eds that are flooding the market recently, is a blatant lack of hard evidence that large bills are predominantly used by criminals rather than law-abiding citizens who are using them as a counterparty-risk free store of value. They simply all quote each other, until one believes that there actually has been a comprehensive study that showed credible and hard evidence that large bills have no other function in the market than to facilitate crime.

At the same time, the true intentions are concealed and the huge risks for not having cash are omitted. In the Bloomberg video ‘campaign’, they fail to mention monetary policy at all, and in fact take the pitch a step farther and seem to suggest that the international community put pressure on Switzerland, a sovereign country with an ‘independent’ central bank, to eliminate the CHF1000 as well. And again, all in the name of fighting crime, without much / with only little /supporting evidence and not a single hint of their primary objective (because a public debate on taxing savings - even more than is already done - is probably a debate they don’t expect they would win cleanly).

Digging further, the advocates for an abandonment of cash claim that their focus is on the large denominations only, as apparently those bank notes are predominately used for criminal activities. Smaller bills, we are reassured, will not be affected. However, our colleagues Stefan Wieler and Josh Crumb at GoldMoney have taken a closer look at the spins of academics and central bankers and found that:

“While most advocates for phasing out large bills are not getting tired emphasizing that smaller bills would not be affected, we show that the largest bills of each currency account for over 2/3 of all bank notes in circulation. Hence, all the problems we think will emerge with a complete phase-out of cash would in our view already materialize by eliminating the largest bills. We collected data on bank notes and coins in circulation for the 11 most traded currencies in the world plus the Indian Rupee, Brazilian Real and the Russian Ruble. The countries issuing these currencies account for about 77% of global GDP. Combined, all the currency in circulation is about USD5.2tn at current exchange rates. Importantly, the largest bills account for about USD3.6tn, or close to 70%.”

By phasing out the largest bills, gold outweighs currency as percentage of total physical money by 3:1 from currently 1:1

Source: GoldMoney Research

Stefan and Josh also show that Cash has important checks and balance functions on commercial banks:

“One important finding we present is the systematically important use of large-denomination cash bills in times of market volatility. Eliminating the ability of savers to redeem cash and store it would remove important checks and balances on commercial banks. But by eliminating cash, not just does this remove important checks and balances on commercial banks, it also removes checks and balances on central banks: Since the 2008/2009 credit crunch, central banks around the world have held interest rates at historical lows. The US Federal reserve has held the FED lending rate near zero for nearly 7 years. Other banks have followed, and some didn’t stop there. ……………..As the push for negative interest rates intensifies, central banks face the dilemma that savers might simply opt to pull their money out of banks altogether and store cash at home or in a safe. ……. A phase out of cash, and be it just the largest bills, would effectively remove this checks and balances on central banks as well. It is therefore obvious that central banks are not honest with their constituents of why they push for a cashless society.”

They then conclude:

“However, just as ZIRP has not led to desired effect and to a lot of unwanted side-effects such as soaring assets prices, NIRP achieve the same even without the ability to store cash. Gold has been the money of choice for 1000’s of years. The value of the total above ground stocks of gold and the value of all currency in circulation is currently about the same. Removing the largest bills from the equation would mean that gold would have to assume a much larger role. Our sister company Bitgold has revolutionized the way people can save and spend in gold. As the cash phase-out advances, the appeal to hold gold as a savings asset without banking risk will only increase. We present the significance of large bills as a portion of physical currency circulating in the global monetary system and show that by removing them, gold would outweigh currency as percentage of total physical money by 3:1 from currently 1:1. “

The full report can be accessed here: https://www.goldmoney.com/our-research/goldmoney-insights/eliminating-cash-will-also-eliminate-the-checks-and-balances