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What the Regime Will Do to Fight Private Digital Currencies | Mises Wire

Posted by M. C. on January 12, 2022

Yes, states have many tools to push the public to use the government’s money. But governments also know there are limits to this and they fear hyperinflationary scenarios. These situations have a tendency to bring extreme political and monetary instability. Cryptocurrencies may help make that fear more acute and immediate. If that’s the case, it’s good news.

https://mises.org/wire/what-regime-will-do-fight-private-digital-currencies

Ryan McMaken

During a confirmation hearing with the US Senate this week, Fed chairman Jerome Powell was asked about whether or not a digital currency issued by a central bank could exist side by side with private cryptocurrencies. Powell responded that there is nothing that would prevent private cryptos from “coexisting” with a “digital dollar.”

This, of course, is obviously true so long as federal regulators do not decide to ban the usage of cryptocurrencies.

Business Insider meanwhile has reported that Powell’s comments “appeared to be a shift” from his earlier comments stating that “you wouldn’t need” cryptocurrencies in a world of central bank digital currencies (CBDCs).

It’s not clear that this is a “shift,” however. Powell’s earlier comments simply communicated Powell’s apparent position that the Fed’s CBDC would be preferred by the users of these currencies. If the central bank’s digital currencies are wonderful, there no “need” to have any other. 

Central Banks Plan to Outcompete Crypto

Indeed, Powell’s two statements on this matter likely reflect the fact that the central bank apparently plans to outcompete private cryptocurrencies. This would be a reasonable goal for the Fed given the central bank’s vast regulatory power and legal privileges. Because the central bank directly regulates banks and is so entrenched in the financial sector overall, it could more easily facilitate a virtually seamless introduction of its own digital currencies into the financial sector and make its digital currency more convenient than others. Moreover, the Congress can use its powers to “encourage” the public to favor the regime’s currency, digital or otherwise. 

Does the Higher-Quality Currency Necessarily Win Out?

This doesn’t worry many supporters of cryptocurrencies, who are generally confident that their currencies are higher quality than anything a central bank can offer. When they say “higher quality” these private crypto backers—especially those backing bitcoin—often mean that their currency cannot be inflated as can fiat currencies. Thus, these private currencies do not lose their value as fiat currencies do. Presumably the public would flock to the higher-quality currency. 

It is debatable, however, whether this sort of quality really determines the use of a currency as a general medium of exchange. Indeed, if anything, experience suggests otherwise, and this has long been seen in the workings of Gresham’s law. When competing against “lower quality”—that is, more inflation-prone—currencies, “higher quality” currencies tend to become hoarded rather than used as money. This is reflected in the “HODL” movement, in which it is assumed that it is better to hold on to cryptos indefinitely rather than convert them into “inferior” assets, whether dollars or anything else. So long as this thinking prevails, it’s difficult to see how a crypto can make the transition to a general medium of exchange—i.e., money. Even if the inferiority of the government’s fiat currency is not in dispute, this does not necessarily lead to widespread use of the “superior” currency for daily use.

How to “Convince” People to Use Fiat Currency

Yet one could also define “quality” as the ease with which one can use a currency. Bitcoin advocates, for instance, have pointed to the relative ease with which bitcoin can be used in purchases without the need for intermediate institutions. Even in this arena, though, inflationary currencies controlled by central banks may nonetheless be competitive, even if inferior in terms of maintaining value.

This, of course, is one of the purposes of issuing new CBDCs. It’s to more fully and directly co-opt and compete with private digital currencies. Presumably, payments using CBDCs need not go through intermediary institutions either. Will these CBDCs be “better” than private digital currencies? Perhaps not by many metrics. But to stay relevant, fiat currencies need not be the best money. They only need to be good enough. Government regulations can do the rest. 

After all, when it comes to propping up the official currency, a regime or central bank has several tools. For one, the regime can continue to make a certain currency legal tender. Contrary to what many believe, this does not force people to use a certain currency for all transactions. Nevertheless, legal tender laws do impel users of money to favor one specific money over others for the repayment of loans and other uses. Moreover, a regime can mandate that tax bills be paid in the currency of the regime’s choosing. Borrowers would continue to pay back loans in devalued dollars—and this would likely include many huge institutional borrowers.

In an inflationary atmosphere, this can continue to offer significant support to at least some use of a currency—or a digital version thereof—even in the face of steeply declining value. Imagine, for example, a world in which every employer must pay withholding taxes in dollars and in which every homeowner must pay property taxes in dollars. Imagine a world in which every commercial and residential real estate lender—lenders heavily regulated by federal policymakers—must accept repayment in depreciating dollars. This is no small advantage for a currency—even one in decline. 

Using Coercion to Protect Fiat Currency

And then there are more crude methods of protecting the official currency. Beyond legal tender laws, the regime could use the tax code to punish the use of private currencies in other ways. Charging capital gains taxes on alternative money is just one method. Regimes have been known to become quite creative when it comes to punitive taxes against activities the regime does not like.

There is also always the “nuclear option,” which is banning these currencies altogether. Let it never be forgotten that the US regime once banned the private ownership of gold bullion, punishable by draconian fines and by imprisonment. 

None of this contradicts economic arguments that in an unhampered market, certain private cryptocurrencies are far superior to fiat money in terms of value retention. Those are economic questions, though. The political questions are different, and once government regimes become involved, the calculus can change considerably. States have long jealously guarded their prerogatives over the money supply and are likely to resort to any number of violent, dangerous, or risky policies when these privileges are threatened. 

But What If the Regime’s Money Hyperinflates?

On the other hand, states, with all their vast coercive power, sometimes lose their ability to ensure the continued usage of the state’s official currency.

As Daniel Lacalle recently noted, sometimes a government’s currency ceases to be money altogether:

If the private sector does not accept this currency as a unit of measure, a generalized means of payment, and a store of value backed by reserves and demand from the mentioned private sector, the currency becomes worthless and ceases to be money. Ultimately, it becomes useless paper.

This happens when a currency devalues so completely and so rapidly, that neither convenience nor legal status can save the currency’s status as money.

Extreme hyperinflation, however, appears to be the only scenario—short of big ideological changes undermining the state overall—under which a private cryptocurrency is likely to become the general medium of exchange. Government currencies would likely have to implode and not just slowly depreciate at a rate of, say, 5 or 10 percent per year. It has already been demonstrated for more than a century that deflationary fiat currencies can go on for many decades so long as inflation rates are within what the public considers to be a tolerable range. Unfortunately, the public also appears to have a high threshold for what is tolerable. 

The Importance of a Competing Store of Value

But even if regimes manage to prop up their currencies indefinitely, the existence of cryptocurrencies nonetheless has the potential for offering a valuable service. That is, the existence of private cryptocurrencies could work to force greater discipline on regimes in terms of deficit spending and other activities that lead to the debasement of government currencies. If users of fiat currency can more easily flee to some other store of value, this will put greater pressure on inflationary currency and force regimes to think twice about indulging in high levels of deficit spending and the all-but-inevitable money printing that follows. That is, if savers can easily sit on their savings in some form other than fiat currencies, this raises the political risk to regimes in terms of triggering dangerously high inflation rates. This means cryptocurrencies could serve a helpful political function even if they don’t lead to a scenario in which government fiat currencies are fully abandoned any time in the foreseeable future.

Yes, states have many tools to push the public to use the government’s money. But governments also know there are limits to this and they fear hyperinflationary scenarios. These situations have a tendency to bring extreme political and monetary instability. Cryptocurrencies may help make that fear more acute and immediate. If that’s the case, it’s good news.

Author:

Contact Ryan McMaken

Ryan McMaken is a senior editor at the Mises Institute. Send him your article submissions for the Mises Wire and Power and Market, but read article guidelines first.

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Since 2008, Monetary Policy Has Cost American Savers about $4 Trillion | Mises Wire

Posted by M. C. on November 19, 2021

Inflation: the hidden tax. Usually used to pay for war.

As one immediate step, Congress should require the Federal Reserve to provide a formal savers impact analysis as a regular part of its Humphrey-Hawkins reports on monetary policy and targets. This savers impact analysis should quantify, discuss, and project for the future the effects of the Fed’s policies on savings and savers, so that these effects can be explicitly and fairly considered along with the other relevant factors.

https://mises.org/wire/2008-monetary-policy-has-cost-american-savers-about-4-trillion

Alex J. Pollock

With inflation running at over 6 percent and interest rates on savings near zero, the Federal Reserve is delivering a negative 6 percent real (inflation-adjusted) return on trillions of dollars in savings. This is effectively expropriating American savers’ nest eggs at the rate of 6 percent a year. It is not only a problem in 2021, however, but an ongoing monetary policy problem of long standing. The Fed has been delivering negative real returns on savings for more than a decade. It should be discussing with the legislature what it thinks about this outcome and its impacts on savers.

The effects of central bank monetary actions pervade society and transfer wealth among various groups of people—a political action. Monetary policies can cause consumer price inflations, like we now have, and asset price inflations, like those we have in equities, bonds, houses, and cryptocurrencies. They can feed bubbles, which turn into busts. They can by negative real yields push savers into equities, junk bonds, houses, and cryptocurrencies, temporarily inflating prices further while substantially increasing risk. They can take money away from conservative savers to subsidize leveraged speculators, thus encouraging speculation. They can transfer wealth from the people to the government by the inflation tax. They can punish thrift, prudence, and self-reliance.

Savings are essential to long-term economic progress and to personal and family financial well-being and responsibility. However, the Federal Reserve’s policies, and those of the government in general, have subsidized and emphasized the expansion of debt, and unfortunately appear to have forgotten savings. The original theorists of the savings and loan movement, to their credit, were clear that first you had “savings,” to make possible the “loans.” Our current unbalanced policy could be described, instead of “savings and loans,” as “loans and loans.”

As one immediate step, Congress should require the Federal Reserve to provide a formal savers impact analysis as a regular part of its Humphrey-Hawkins reports on monetary policy and targets. This savers impact analysis should quantify, discuss, and project for the future the effects of the Fed’s policies on savings and savers, so that these effects can be explicitly and fairly considered along with the other relevant factors. The critical questions include: What impact is Fed monetary policy having on savers? Who is affected? How will the Fed’s plans for monetary policy affect savings and savers going forward?

Consumer price inflation year over year as of October 2021 is running, as we are painfully aware, at 6.2 percent. For the ten months of 2021 year-to-date, the pace is even worse than that—an annualized inflation rate of 7.5 percent.

Facing that inflation, what yields are savers of all kinds, but notably including retired people and savers of modest means, getting on their savings? Basically nothing. According to the Federal Deposit Insurance Corporation’s October 18, 2021, national interest rate report, the national average interest rate on savings account was a trivial 0.06 percent. On money market deposit accounts, it was 0.08 percent; on three-month certificates of deposit, 0.06 percent; on six-month CDs, 0.09 percent; on six-month Treasury bills, 0.05 percent; and if you committed your money out to five years, a majestic CD rate of 0.27 percent. 

I estimate, as shown in the table below, that monetary policy since 2008 has cost American savers about $4 trillion. The table assumes savers can invest in six-month Treasury bills, then subtracts from their average interest rate the matching inflation rate, giving the real interest rate to the savers. This is on average quite negative for these years. I calculate the amount of savings effectively expropriated by negative real rates. Then I compare the actual real interest rates to an estimate of the normal real interest rate for each year, based on the fifty-year average of real rates from 1958 to 2007. This gives us the gap the Federal Reserve has created between the actual real rates over the years since 2008 and what would have been historically normal rates. This gap is multiplied by household savings, which shows us by arithmetic the total gap in dollars.

savers

To repeat the answer: a $4 trillion hit to savers.

The Federal Reserve through a regular savers impact analysis should be having substantive discussions with Congress about how its monetary policy is affecting savings, what the resulting real returns to savers are, who the resulting winners and losers are, what the alternatives are, and how its plans will impact savers going forward.

After thirteen years with on average negative real returns to conservative savings, it is time to require the Federal Reserve to address its impact on savers.

Author:

Alex J. Pollock

Alex J. Pollock is a Senior Fellow at the Mises Institute. Previously he served as the Principal Deputy Director of the Office of Financial Research in the U.S. Treasury Department (2019-2021), Distinguished Senior Fellow at the R Street Institute (2015-2019 and 2021), Resident Fellow at the American Enterprise Institute (2004-2015), and President and CEO, Federal Home Loan Bank of Chicago (1991-2004). He is the author of Finance and Philosophy—Why We’re Always Surprised (2018) and Boom and Bust: Financial Cycles and Human Prosperity (2011), as well as numerous articles and Congressional testimony. Pollock is a graduate of Williams College, the University of Chicago, and Princeton University.

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We Don’t Need a Central Bank to Deal with Changes in the “Demand for Money” | Mises Wire

Posted by M. C. on September 8, 2021

If the market will settle on gold or any other commodity as money the amount of this commodity is going to be in line with people’s requirements.

Given that a commodity that is selected as money is part of the stock of wealth the increase in the supply of such commodity is not going to set in motion the menace of boom-bust cycle. This should be contrasted with the increase in the money supply out of “thin air”.

https://mises.org/wire/we-dont-need-central-bank-deal-changes-demand-money

Frank Shostak

Historically, many different goods have been used as money. On this, Ludwig von Mises observed that, over time,

[T]here would be an inevitable tendency for the less marketable of the series of goods used as media of exchange to be one by one rejected until at last only a single commodity remained, which was universally employed as a medium of exchange; in a word, money.1

Similarly, Murray Rothbard wrote in “What Has Government Done to Our Money,”

Just as in nature, there is a great variety of skills and resources, so there is a variety in the marketability of goods. Some goods are more widely demanded than others, some are more divisible into smaller units without loss of value, some more durable over long periods of time, some more transportable over large distances. All of these advantages make for greater marketability. It is clear that in every society, the most marketable goods will be gradually selected as the media for exchange. As they are more and more selected as media, the demand for them increases because of this use, and so they become even more marketable. The result is a reinforcing spiral: more marketability causes wider use as a medium, which causes more marketability, etc. Eventually, one or two commodities are used as general media-in almost all exchanges-and these are called money.

Through the ongoing process of selection, people settled on gold as their preferred medium of exchange. Some commentators, cast doubt that gold can fulfill the role of money in the modern world. It is held that, relative to the growing demand for money because of growing economies, the supply of gold is not growing fast enough. On this according to Insider from June 15, 2011,

See the rest here

Author:

Contact Frank Shostak

Frank Shostak‘s consulting firm, Applied Austrian School Economics, provides in-depth assessments of financial markets and global economies. Contact: email.

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EconomicPolicyJournal.com: WARNING: Central Bank Digital Currency Will Be 100% Trackable Currency

Posted by M. C. on May 7, 2021

2. And this is not fully appreciated at all. Once a CBDC is established and becomes the method of general exchange, it will be very easy for governments to block any kinds of exchanges it desires to block. In other words, it provides the opportunity for cancel culture and authoritarianism at an entirely new level.

https://www.economicpolicyjournal.com/2021/05/warning-central-bank-digital-currency.html

The Financial Times reports:

What CBDC [Central Bank Digital Currency] research and experimentation appears to be showing is that it will be nigh on impossible to issue such currencies outside of a comprehensive national digital ID management system. Meaning: CBDCs will likely be tied to personal accounts that include personal data, credit history and other forms of relevant information.

There are two very important implications here:

1. Central banks will have to kill off private sector cryptocurrencies.

There is just no way that CBs are going to allow private crypto that can provide an end-run around CBDC.

2. And this is not fully appreciated at all. Once a CBDC is established and becomes the method of general exchange, it will be very easy for governments to block any kinds of exchanges it desires to block. In other words, it provides the opportunity for cancel culture and authoritarianism at an entirely new level.

Bottom line: It is not clear why bitcoin was originally created or by whom but may lead to being one of the worst inventions ever created by man.

 –RW

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Central Bank Digital Currencies and the War on (Physical) Cash | Mises Wire

Posted by M. C. on December 7, 2020

At the end of the day, central bank digital currencies are all about control, not meeting consumer demand. The ECB admits as much at several points in their report. Here is just one instance: If people are really demanding a digital euro, why would it have to be assigned legal tender status in order for it to be accepted, as the authors of the report clearly state would be necessary (p. 33)? The only scenario where introducing a CBDC makes sense is in order to phase out the use of physical cash in order to be able to impose whatever negative interest rate regime the central bankers in charge judge necessary. Helicopter money, restrictions on cash holding, and negative interest rates are all part of the bundle of desirable policies that can only—or most easily—be achieved with digital currencies fully controlled by the issuing central banks.

https://mises.org/wire/central-bank-digital-currencies-and-war-physical-cash

Kristoffer Mousten Hansen

Twenty twenty is a year dominated by bad news. While governments around the world have imposed extremely destructive restrictions on economic life and promise a “Great Reset” that amounts to a great leap forward into the socialist future, central bankers have advanced plans for implementing central bank digital currencies (CBDCs). These may arrive as early as next year. Yet what is the motivation behind this innovation? Reports recently published by the Bank for International Settlements1 and the European Central Bank2 provide part of the answer. These publications provide fascinating insight into the theories and ideologies driving central bankers in their pursuit of CBDCs.

Monetary Policy? Moi?

One perhaps surprising theme in both reports is the disavowal of any monetary policy behind plans for introducing CBDCs. The BIS report claims that “[m]onetary policy will not be the primary motivation for issuing CBDC” (p. 8) and the ECB report notes that a “possible role for the digital euro as a tool to strengthen monetary policy is not identified in this report” (p. 3). One might first of all suppose that introducing a new form of money would by definition amount to monetary policy, at least in a broad sense, and secondly perhaps find it a tiny bit weird that institutions dedicated to researching and implementing monetary policy would not have considered the potential effects of a new form of money in light of its effects on policy. But what is really striking is that both reports—and especially the one issued by the ECB—at great length detail the implications for monetary policy of CBDC. True, they say they don’t, but looking beyond the executive summary and paying attention to what is written in the report itself puts the lie to that claim.

In order to see this, we only need to look at the key features the central bankers identify as desirable in a CBDC: it should be interest bearing, and it should be possible to cap how much each individual can hold. Both measures are clearly aimed at supporting monetary policy. The cap on holdings forces people to spend their money, driving either price inflation or investment in financial assets, and by making the CBDC interest bearing (or remunerated, in the language of the ECB) it becomes a tool of setting and passing on policy rate changes, including negative interest rates.

The ECB’s Report on a Digital Euro in particular goes on at great length about the need to limit or disincentivize “the large-scale use of a digital euro as an investment” (p. 28). The reasoning behind this position is crystal clear: since monetary policy has driven interest rates into negative territory, the ECB should not allow large-scale holding of digital euros, since investors would then, quite sensibly, chuck their holdings of negative-yielding bonds and seek a safe haven in digital euros—that is, if they can hold them at no cost. Similarly, the ECB is averse to letting people convert their bank deposits into digital euros (p. 16), which would reside in their individual wallets rather than in a bank account. Indeed, the horror of what the BIS and ECB reports call “financial disintermediation” looms large in the minds of central bankers: if people keep their money outside of banks, these will have less money to lend out, thereby increasing borrowing costs. In the words of the BIS report, they are concerned that

a widely available CBDC could make such events [i.e., bank runs] more frequent by enabling “digital runs” toward the central bank with unprecedented speed and scale. More generally, if banks begin to lose deposits to CBDC over time they may come to rely more on wholesale funding, and possibly restrict credit supply in the economy with potential impacts on economic growth. (p. 8)

Of course, Austrian economists since Ludwig von Mises3 understand that “financial disintermediation” can really be a blessing. In the context of digital euros, all it means is that people would hold the amount of cash they deemed desirable outside the banks. They would only make true savings deposits in banks, i.e., they would only surrender money that they did not want instant access to. Under such circumstances, banks would be incapable of expanding credit by issuing unbacked claims to money; they could only make loans out of the funds their customers had explicitly made available for that purpose. This would not only result in a leaner or sounder financial system, it would also avoid the problems of the perennially recurring business cycle. And contrary to what the central bankers fear, the supply of credit would not be restricted, it would simply be forced to correspond to the supply of real savings in the economy. This, unfortunately, is an understanding of economics completely alien to central bankers.

Negative Interest Rates

One aim in introducing CBDCs that is only hinted at is the possibility of imposing even lower negative interest rates. In recent years monetary economists4 have increasingly discussed the problem of the “zero lower bound” on interest rates: the fact that it is impossible to set a negative interest since depositors in that case would simply shift into holding physical cash. When manipulating the interest rate is the main policy tool of central banks this is obviously a problem: How can they work their alchemy and secure an acceptable spread between the main policy rates and the market rate of interest when interest rates are already very low? Allowing for the cost of holding physical cash, –0.5 percent seems to be about as low as they can go.

With a centrally controlled digital currency this problem would disappear. The central bank could set a limit on how much each person and company could hold cost free, and above this limit, they would have to pay whatever negative interest rate (or “remuneration,” as the ECB insists on calling it) is consonant with central bank policy. In this way, holding cash would not obstruct monetary policy, as the cash holdings would be fully under the control of the central bank.

There is just one problem with using CBDC in this way: it only works if physical cash is outlawed. Otherwise, physical cash would still simply play the role it does today, i.e., as the most basic and least risky way of holding one’s wealth and of avoiding negative interest rates. The BIS report clearly identifies this problem (p. 8n7), as does the ECB (p. 12n18): a CBDC could help eliminate the zero lower bound on interest rates, but only if physical cash disappeared. So long as physical cash remains in use, the zero lower bound cannot be breached.

But the People Demand It!

However, people might of their own accord come to the rescue of the world’s central banks, sorely beset as they are by the zero lower bound. At least according to Benoît Coeuré, head of the BIS Innovation Hub (the group tasked with researching CBDC), plenty of people want a central bank digital currency. The ECB also sees the decline in the use of physical cash in favor of other means of payment as one of the main scenarios that would require the issue of a digital euro (p. 10).

Now, while some people might like CBDC, there is really no reason to believe, notwithstanding monsieur Coeuré’s anecdotal evidence, that there is widespread demand for central bank digital currency. The ECB admits as much when they write that physical cash is still the dominant means of payment in the euro area, accounting for over half the value of all payments at the retail level (p. 7). But Coeuré does not need to go far to see the continuing relevance of cash: in 2018 researchers at the BIS itself concluded that cash, far from declining in importance, was still the dominant form of payment.5 More recently, a study in the International Journal of Central Banking showed that cash usage is not only not declining, but even increasing in importance.6

Be that as it may, the central bankers are certainly right that there is an increased demand for digital payment solutions and for cryptocurrencies. However, it is erroneous to conclude from this that therefore a central bank digital currency is demanded. Demand for a payment solution is not the same as demand for a new kind of money. It simply means that people demand payment services that allow them to more cheaply transact with each other. Such services are plentifully provided by companies such as Visa, Mastercard, Paypal, banks, and so on and so forth. There is no reason to believe that central banks need to provide this service nor that they could do it better than private companies and banks, and it is simply a mistake to equate demand for such services with demand for a money.

The mistake in the case of cryptocurrencies is even more egregious. When people hold bitcoin or another cryptocurrency, it is not because their heartfelt demand for a CBDC has to go unfulfilled and this is their closest alternative. On the contrary, people want to own bitcoin precisely so they can avoid the negative interests imposed on the established banking system and the risks of holding inflationary fiat money. Introducing a CBDC would not mitigate those risks, but rather add to them, as the central bank would assume total control of the money supply through it and the attendant abolition of physical cash. The felt need for inflation hedges and the desire to escape central bank control, including as it does negative interest rates and caps on how much cash one could hold, would only increase.

It’s All about Control

At the end of the day, central bank digital currencies are all about control, not meeting consumer demand. The ECB admits as much at several points in their report. Here is just one instance: If people are really demanding a digital euro, why would it have to be assigned legal tender status in order for it to be accepted, as the authors of the report clearly state would be necessary (p. 33)? The only scenario where introducing a CBDC makes sense is in order to phase out the use of physical cash in order to be able to impose whatever negative interest rate regime the central bankers in charge judge necessary. Helicopter money, restrictions on cash holding, and negative interest rates are all part of the bundle of desirable policies that can only—or most easily—be achieved with digital currencies fully controlled by the issuing central banks.

Ironically, far from buttressing the role of central banks and government fiat money, imposing a CBDC may have the completely opposite effect. Replacing physical cash with a CBDC would only strengthen the undesirable qualities of fiat money and further hamper a free market in money and financial services, increasing the demand for alternatives to government money, such as gold and bitcoin.

  • 1. Bank of Canada, European Central Bank, Bank of Japan, Sveriges Riksbank, Swiss National Bank, Bank of England, Board of Governors of the Federal Reserve, and Bank for International Settlements, CBDC: Central Bank Digital Currencies: Foundational Principles and Core Features (N.p: Bank for International Settlements, 2020), https://www.bis.org/publ/othp33.htm.
  • 2. European Central Bank, Report on a Digital Euro (Frankfurt am Main: European Central Bank, October 2020), https://www.ecb.europa.eu/euro/html/digitaleuro-report.en.html.
  • 3. Ludwig von Mises, The Theory of Money and Credit, trans. H. E. Batson (New Haven, CT: Yale University Press, 1953), p. 261ff.
  • 4. See, e.g., Marvin Goodfriend, “Overcoming the Zero Bound on Interest Rate Policy,” Journal of Money, Credit and Banking 32, no. 4 (2000): 1007–35.
  • 5. Morten Bech, Umar Faruqui, Frederik Ougaard, and Cristina Picillo,”Payments Are A-Changin’ but Cash Still Rules,” BIS Quarterly Review (March 2018): 67–80.
  • 6. Jonathan Ashworth and Charles A.E. Goodhart, “The Surprising Recovery of Currency Usage,” International Journal of Central Banking 16, no. 3 (2020): 239–77.

Author:

Kristoffer Mousten Hansen

Kristoffer Mousten Hansen is a research assistant at the Institute for Economic Policy at Leipzig University and a PhD candidate at the University of Angers. He is also a Mises Institute research fellow. 

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The Biggest Threats to Your Personal and Financial Freedom Today

Posted by M. C. on August 13, 2020

International Man: In the US, and much of the West, most people are willingly handing over their dwindling freedoms for the promise of safety or security.

Is there any hope that something will reverse this trend?

Doug Casey: Again, trends in motion tend to stay in motion. Until they stop.

But what generally stops them? Something big. Usually, a crisis or a collapse.

https://internationalman.com/articles/the-biggest-threats-to-personal-and-financial-freedom/

International Man: The world has become increasingly unfree. Recently, the global pandemic has justified all kinds of draconian measures by governments.

How do you see this trend evolving?

Doug Casey: It’s clearly a worldwide trend. The only exceptions are obscure places like North Macedonia, Belarus, and Nicaragua—and they have plenty of other, much more serious problems—and of course, Sweden, which is almost unique among advanced countries in not falling victim to the mass hysteria. Life there has gone on more-or-less normally since March as a result.

It’s not just the national governments, which are bad enough. States, provinces, cities, and counties have taken advantage of the hysteria to “do something” and lock down. For example, New York Mayor Bill de Blasio is putting armed guards around main entrances to New York to keep people out.

Numerous cities around the world, like Melbourne, Australia, have actually turned themselves into police states. This virus scare has gotten quite out of control. The average person thinks we’re living in a Steven King novel.

If it were just a matter of politics, people would be more apt to resist because people recognize the arbitrariness of political opinions. Interestingly, the hysteria also breaks along political lines. Conservatives tend to view it as overblown or even a scam. Liberals tend to see it as a crime if you aren’t masked up and locked down. The virus is a psychological litmus test.

Power mongers are using biology and medicine as excuses to take charge in the name of science. They’re saying that you don’t have a choice because you are affecting the health of others, not just yourself. Minor bureaucrats like Fauci and second string politicians like de Blasio have jumped on it, fanning the flames of a panic. It’s made them into “big men.”

Like the global warming scare, the COVID hysteria is corrupting the idea of science and the credibility of scientific methodology in the eyes of the average man. And incidentally, the overlap between those who want the State to “do something” about global warming, and “do something” about the virus is extremely high.

It’s actually quite insane. COVID as a disease is only serious if you’re elderly or obese or have other serious conditions, which is why the average age of a COVID victim is about 80.

In fact, the deaths from COVID are probably not going to be much greater than they are from a bad annual flu, especially accounting for the fact that many deaths from things like motor accidents are often counted as COVID if the victim also had COVID. Like most things that become politicized, it’s hard to believe anything. The statistics are completely unreliable. What we’re dealing with is mass hysteria, similar to what happened in Salem in the late 17th century.

The matter should be just between you and your doctor. This is how the vastly more serious flu epidemics of the late 1960s and the late 1950s were dealt with. In the big scheme of things, they were non-events, as COVID should be.

This time is different. Your doctor doesn’t count. It’s the doctor with political connections, that counts.

How do I see this trend evolving?

Toward more centralized power, of course. The trend has been in motion for over 100 years, starting with World War I. It’s been in motion for a long time, and it’s accelerating at this point. Trends in motion tend to stay in motion until they reach a crisis point.

The powers that be have discovered that a medical emergency is almost as effective as an actual war to get people used to doing as they’re told. It’s quite amazing how anxious the average American is to act like a whipped dog, roll over on his back, and wet himself. Those who don’t wear their masks—which serve little or no medical purpose; they’re basically virtue-signaling devices—are bullied and shamed. It’s gotten quite out of hand. The woke SJWs are in charge.

International Man: Let’s talk about one of the biggest threats to financial freedom—the Federal Reserve and every other central bank.

The currency printed by these institutions isn’t real money. That is to say, it wasn’t a result of a market process of people voluntarily coming to the conclusion to use a specific good as money. Government decrees, laws, and regulations made central bank currency money.

How can individuals protect themselves from this enormous swindle?

Doug Casey: It’s not just the US government. Every central bank in the world is printing up currency units not just by the billions, but by the trillions.

What you have to do is figure out where that money is going to go, and try to get there first. In this environment, rational investing is becoming increasingly impossible. The economy and society will become more chaotic. It has become foolish to have a long-term horizon, and to make other than hit-and-run-style investments. You’re forced to be a speculator.

I would point out that in a normal free market society, speculators would be chronically unemployed. Why? Speculating, more than anything else, is capitalizing on politically caused distortions in the market. There would be very few in a true free market.

But now, as powerful as governments are, distortions and politically caused misallocations of capital are everywhere. With regulations and tons of money being thrown at the markets, you’re forced to speculate. It’s too bad because speculation is not productive in itself; it’s a zero sum game. It’s very different from investing, which is allocating capital to create more wealth through innovation and production.

However, we don’t make the rules. That, unfortunately, is something our betters have arrogated to themselves. We’re just playing the game. If you don’t want to get hurt, it’s important to learn to play the game successfully.

That means orienting your mindset to that of a speculator. Most people will confuse speculating with gambling, however, and they’ll wind up losing everything. They’ll wind up much worse off by treating the stock market like a casino.

The simplest thing you can do at this point—other than watching where the money is going and getting there first—is continuing to buy gold and silver and setting them aside. At a minimum, that will preserve your capital.

Unfortunately, neither metal is no longer a giveaway bargain. On the other hand, the trend is clearly in motion, and it’s accelerating. They’re going much higher. Gold would have to go to about $3000 to equal—in real terms—it’s peak of $800 back in 1980. And the situation is vastly more precarious now than it was then. I expect the current bull market to take it much higher.

Right now, the best speculations are mining companies. They have done extremely well, but relative to the gains in the underlying metals, they’re lagging.

That’s true because none of the big fund managers own gold stocks. Why not? They don’t understand gold. They think that it’s a pet rock.

But at some point, soon, they’re going to pile into these mining stocks. They’re now hugely profitable and becoming more so. Even the biggest ones are relatively small-cap companies in today’s world. Most miners are not just small-cap, and they’re not even micro caps. They’re nano caps. The market caps of every gold producer in the world adds up to around $200 billion. That’s only a bit more than the cash that Apple alone has in its treasury.

These things could be more explosive than they have ever been in the past. To use a phrase, I coined to describe past gold-stock bull markets: It’s going to be like trying to funnel the contents of Hoover Dam through a garden hose.

It’s really a pity that the average American is being swindled by the Fed, and the government in DC, and a pity that almost nobody owns gold or silver physically, and many fewer own mining stocks. But let’s try to take advantage of the unfortunate reality.

International Man: In the US, and much of the West, most people are willingly handing over their dwindling freedoms for the promise of safety or security.

Is there any hope that something will reverse this trend?

Doug Casey: Again, trends in motion tend to stay in motion. Until they stop.

But what generally stops them? Something big. Usually, a crisis or a collapse.

Here’s an example. You would have thought that the trends in Venezuela and Zimbabwe would have stopped years ago. You’d think those people could see how bad things were getting and say, “Wait a minute, we’re going down the wrong path.” But that’s not the case.

Neither Venezuela nor Zimbabwe is going to turn around until there’s a complete and utter collapse followed by serious violence. That’s the case almost everywhere—trends in motion stay in motion until they reach a crisis. I don’t think you can reverse the trend with half measures, like voting.

Why don’t I think you can reverse the trend?

It’s because, over the last roughly three generations, almost everybody has gone to college. Meanwhile, colleges have been transformed from places where you received an education, something useful, to institutions of mass indoctrination. The tenets of cultural Marxism, socialism, and statism have filtered down to high schools and even grade schools.

When people are at a crucial time in their life, late teens and early twenties, and they’re taught something. It’s very hard for them to unlearn it. It’s very much like when I started playing polo. I thought I knew how to ride a horse because I could stay on when it went faster than a walk.

As a result, I picked up all kinds of bad habits and cost myself years, having to unlearn bad habits. Whereas, if I just learned the proper way to do things to start with, I would have been far ahead in the game.

That’s the problem with kids going to college and high schools, and even grade schools, today. They’re hit with instruction that’s often not just wrong, but the opposite of the truth. It’s very hard for them to unlearn it.

As Will Rogers liked to say, the problem isn’t even what people don’t know. It’s what they think they know that just ain’t so.

It’s reinforced by ads that corporations put on television, and the huge amounts of money they give to left-wing organizations. You’d think they’d be interested in defending capitalism—but that’s incorrect. Lenin was correct when he commented that the capitalists were so stupid that they’d sell him the rope he’d use to hang them.

That’s on top of Hollywood, the propaganda coming out of thousands of NGOs, and mostly everything that politicians say.

I don’t think the trend is going to turn around. In fact, it’s accelerating, and it’s going to continue accelerating until we reach a nasty crisis.

Editor’s Note: As these trends continue to accelerate, what you do right now can mean the difference between coming out ahead or suffering crippling losses.

That’s exactly why bestselling author Doug Casey and his team just released a free report with all the details on how to survive an economic collapse.

It will help you understand what is unfolding right before our eyes and what you should do so you don’t get caught in the crosshairs.

Click here to download the PDF now.

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The Ron Paul Institute for Peace and Prosperity : Central Banking is Socialism

Posted by M. C. on March 10, 2020

Allowing the central bank to buy assets of, and thus assume a partial ownership interest in, private companies would give the Federal Reserve even greater influence over the economy. It could also allow the Fed to advance a political agenda by, for example, favoring investment in “green energy” companies over other companies or refusing to purchase assets of retailers who sell firearms or tobacco products.

The essence of socialist economics is government allocation of resources either by seizing direct control of the “means of production” or by setting prices business can charge.

http://ronpaulinstitute.org/archives/featured-articles/2020/march/09/central-banking-is-socialism/

Written by Ron Paul

Last week, the Federal Reserve responded to Wall Street’s coronavirus panic with an “emergency” interest rate cut. This emergency cut failed to revive the stock market, leading to predictions that the Fed will again cut rates later this month.

More rate cuts would drive interest rates to near, or even below, zero. Lowering interest rates punishes people for saving, thus encouraging consumers and businesses to spend every penny they make. This may give the economy a short-term boost. But, it inhibits long-term economic growth by depleting the savings necessary for investments in businesses and jobs. The result of this policy will be more pressure on the Fed to indefinitely maintain low interest rates and on the Congress and president to create another explosion of government “stimulus” spending.

Boston Federal Reserve President Eric Rosengren has suggested that Congress allow the Federal Reserve to add assets of private companies to the Fed’s already large balance sheet. Allowing the central bank to buy assets of, and thus assume a partial ownership interest in, private companies would give the Federal Reserve even greater influence over the economy. It could also allow the Fed to advance a political agenda by, for example, favoring investment in “green energy” companies over other companies or refusing to purchase assets of retailers who sell firearms or tobacco products.

Mr. Rosengren’s proposal to allow the central bank to “invest,” in private companies seems like something one would hear from democratic socialists like Senator Bernie Sanders. This is not surprising since the entire Federal Reserve system is a textbook example of socialism.

The essence of socialist economics is government allocation of resources either by seizing direct control of the “means of production” or by setting prices business can charge. Federal Reserve manipulation of interest rates is an attempt to set the price of money. Federal Reserve attempts to set interest rates distort the signals sent by the rates to investors and business. This results in a Fed-created boom, which is inevitably followed by a Fed-created bust.

Economic elites benefit when the Federal Reserve pumps new money into the economy because they have access to the money created before there are widespread price increases. Artificially low interest rates also facilitate the growth of the welfare-warfare state.

The Federal Reserve’s inflationary policies harm the average American by eroding the dollar’s purchasing power. This forces consumers to rely on credit cards and other forms of debt to maintain their standard of living. Many Americans are unable to afford their own homes because they are saddled with student loan debt that can even exceed their income.

Since the bailouts of 2008, there has been a growing understanding that the current system is rigged in favor of the elites and against the average American. Unfortunately, popular confusion of our system of Keynesian neoliberalism with a free-market economy, combined with a widespread entitlement mentality, has led many Americans to support increasing government control of our economy.

The key to beating back the rising support for socialism on both the left and right is helping more people understand that big government and central banking are the cause of their problems and that free markets in all areas — and especially in money — is the solution. It is important that the liberty movement put pressure on Congress to cut spending and rein in or, better yet, end the Fed.


Copyright © 2020 by RonPaul Institute. Permission to reprint in whole or in part is gladly granted, provided full credit and a live link are given.
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Lebanese focus fury on banks-Erie Times E-Edition Article

Posted by M. C. on January 23, 2020

People say they are being subjected to humiliation by the banks and their managers who ultimately have the power to decide who gets how much.

Forget keeping your cash in banks. Buy a good safe.

Defeat the war on cash and be prepared for when the next crunch hits.
http://erietimes.pa.newsmemory.com/?publink=2f4c39949

BEIRUT — Before picking up cash from a downtown bank in Lebanon’s capital, Mey Al Sayegh mentally braces herself for what would have been a routine trip before the country’s crippling cash crunch. For starters, it will be at least an hour’s wait in line before her turn comes. And if she’s lucky, she’ll be able to withdraw $300 — the weekly limit on dollar withdrawals imposed by banks to preserve liquidity — without having to bargain with the teller.

“I tell my family ‘I’m going to the bank, but I don’t know when I’ll return,’” said the communications manager. “It’s very unpleasant. You see people’s expression — worried, confused, they’re scared that they’re going to lose their deposits.”

For years, many Lebanese have lived beyond their means, supporting their outsized spending with loans and generous remittances from diaspora relatives scattered across the globe, including family members working in oil-rich Arab Gulf countries.

A severe financial crisis and unprecedented capital controls have put an end to this, uniting both rich and poor in anger against corrupt politicians who have brought the country to the brink of economic collapse, and a banking system they accuse of holding their deposits hostage.

In recent days, some protesters have taken out their ire on the banks, destroying ATMs, smashing bank windows and clashing with tellers behind the counter.

Dozens of protesters have held sit-ins at banks against the fiscal policies, forcing tellers on more than one occasion to give them more than the weekly limit. Demonstrators routinely gather in front of the country’s Central Bank, jeering and hurling expletives at its governor, Riad Salameh, who was once ranked among the world’s top central bank governors.

“You go to a bank, get a ticket, and there are at least 50-60 people in front of you,” said Mahmoud Sayida, a tour guide whose money is trapped with one of the country’s largest lenders. “It’s as though you are lining up for bread in the war days.”

The crisis in Lebanon, one of the most heavily indebted nations in the world, is rooted in decades of state corruption and bad management, and the tiny Mediterranean country’s economy had been in steady decline for years. The local currency, pegged to the dollar for more than two decades, has lost more than 50% of its value in recent weeks on the black market.

Fearing a crisis, depositors in the past year had been quietly withdrawing their money, changing it from the local currency to dollars, or funneling it to bank accounts abroad.

At the onset of nationwide protests that broke out in mid-October, banks closed their doors for 12 working days. When they reopened, they faced an unprecedented rush to withdraw dollars, resulting in the limits on withdrawals and foreign transfers.

But there was no legal basis for such actions, leaving it up to the banks to implement their own controls on a caseby- case basis. Meanwhile, ATM machines have mostly stopped dispensing dollars and daily limits on credit card use have been implemented. Many restaurants and shops, strapped for cash, are refusing card payments.

People say they are being subjected to humiliation by the banks and their managers who ultimately have the power to decide who gets how much.

People with children studying abroad need to offer proof before they are allowed to transfer their tuition money. Patients are required to produce paperwork proving they need money for surgery before they can withdraw cash from their accounts. To get credit card limits temporarily increased, customers are asked by some banks to produce a plane ticket and documentation proving a stay abroad longer than two weeks.

The measures are forcing families to limit expenditures and prioritize daily necessities. Simple activities, such as going to a cafe or a restaurant, are now considered luxuries, even for those with money or jobs. Sullen moods have overcome depositors and lenders alike, whose employees say they are afraid to show up at work because of fights breaking out inside banks and people cursing them every day.

In this Jan. 14 photo, anti-government protesters smash a bank widows, during ongoing protests against the Lebanese central bank’s governor and against the deepening financial crisis, at Hamra trade street, in Beirut, Lebanon. [HUSSEIN MALLA/ASSOCIATED PRESS FILE PHOTO]

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Of Two Minds – The Telltale Signs of Imperial Decline

Posted by M. C. on December 30, 2019

There is a peculiarly widespread belief that Elites are so smart and powerful that they always manage to evade the collapse of the empires that created and protected their wealth. But there is essentially no evidence for this belief when eras truly change.

…and the worship of unproductive celebrity…

https://www.oftwominds.com/blogaug18/imperial-decline8-18.html

Charles Hugh Smith

Nothing is as permanent as we imagine–especially super-complex, super-costly, super-asymmetric and super-debt-dependent systems.

Check which signs of Imperial decline you see around you: The hubris of an increasingly incestuous and out-of-touch leadership; dismaying extremes of wealth inequality; self-serving, avaricious Elites; rising dependency of the lower classes on free Bread and Circuses provided by a government careening toward insolvency due to stagnating tax revenues and vast over-reach–let’s stop there to catch our breath. Check, check, check and check.

Sir John Glubb listed a few others in his seminal essay on the end of empires The Fate of Empires, what might be called the dynamics of decadence:

(a) A growing love of money as an end in itself: Check.

(b) A lengthy period of wealth and ease, which makes people complacent. They lose their edge; they forget the traits (confidence, energy, hard work) that built their civilization: Check.

(c) Selfishness and self-absorption: Check.

(d) Loss of any sense of duty to the common good: Check.

Glubb included the following in his list of the characteristics of decadence:

— an increase in frivolity, hedonism, materialism and the worship of unproductive celebrity (paging any Kardashians in the venue…)

— a loss of social cohesion

— willingness of an increasing number to live at the expense of a bloated bureaucratic state

Historian Peter Turchin, whom I have often excerpted here, listed three disintegrative forces that gnaw away the fibers of an Imperial economy and social order:

1. Stagnating real wages due to oversupply of labor

2. overproduction of parasitic Elites

3. Deterioration of central state finances

War and Peace and War: The Rise and Fall of Empires

To these lists I would add a few more that are especially visible in the current Global Empire of Debt that encircles the globe and encompasses nations of all sizes and political/cultural persuasions:

1. An absurdly heightened sense of refinement as the wealth of the top 5% has risen so mightily as a direct result of financialization and globalization that the top .1% has been forced to seek ever more extreme refinements to differentiate the Elite class (financial-political royalty) from financial nobility (top .5% or so), the technocrat class (top 5%), the aspirant class (next 15%) and everyone below (the bottom 80%).

Now that just about any technocrat/ member of the lower reaches of the financial nobility can afford a low-interest loan on a luxury auto, wealthy aspirants must own super-cars costing $250,000 and up.

A mere yacht no longer differentiates financial royalty from lower-caste financial Nobles, so super-yachts are de riguer, along with extremes such as private islands, private jets in the $80 million-each range, and so on.

Even mere technocrat aspirants routinely spend $150 per plate for refined dining out and take extreme vacations to ever more remote locales to advance their social status.

Examples abound of this hyper-inflation of refinement as the wealth of the top 5% has skyrocketed.

2. The belief in the permanence of the status quo has reached quasi-religious levels of faith. The possibility that the entire financialized, politicized circus of extremes might actually be nothing more than a sand castle that’s dissolving in the rising tides of history is not just heresy–it doesn’t enter the minds of those reveling in refinement or those demanding more Bread and Circuses (Universal Basic Income, etc.)

3. Luxury, not service, defines the financial-political Elites. As Turchin pointed out in his book on the decline of empires, in the expansionist, integrative eras of empires, Elites based their status on service to the Common Good and the defense (or expansion) of the Empire.

While there are still a few shreds of noblesse oblige in the tattered banners of the financial elites, the vast majority of the Elites classes are focused on scooping up as much wealth and power as they can in the shortest possible time, with the goal being not to serve society or the Common Good but to enter the status competition game with enough wealth to afford the refined dining, luxury travel to remote locales, second and third homes in exotic but safe hideaways, and so on.

4. An unquestioned faith in the unlimited power of the state and central bank. The idea that the mightiest governments and central banks might not be able to print their way of our harm’s way, that is, create as much money and credit as is needed to paper over any spot of bother, is unthinkable for the vast majority of the populace, Elites and debt-serfs alike.

That all this newly issued currency and credit is nothing but claims on future production of goods and services and rising productivity never enters the minds of the believers in unlimited state/bank powers. We have been inculcated with the financial equivalent of the Divine Powers of the Emperor: the government and central bank possess essentially divine powers to overcome any problem, any crisis and any conflict simply by creating more money, in whatever quantities are deemed necessary.

If $1 trillion in fresh currency will do the trick–no problem! $10 trillion? No problem! $100 trillion? No problem! there is no upper limit on how much new currency/credit the government and central bank can create.

That there might be limits on the efficacy of this money-creation never enters the minds of the faithful. That pushing currency-credit creation above the limits of efficacy might actually trigger the unraveling of the state-central bank’s vaunted powers never occurs to believers in the unlimited reach of central states/banks.

The possibility that the central state/bank’s powers are actually quite limited is blasphemy in an era in which the majority of the Elites and commoners alike depend on the “free money” machinery of the central state/bank for their wealth and livelihoods.

It is instructive to ponder the excesses of private wealth and political dysfunction of the late Roman Empire with the present-day excesses of private wealth and political dysfunction. As Turchin and others have documented, where the average wealth of a Roman patrician in the Republic (the empire’s expansionist, integrative phase) was perhaps 10-20 times the free-citizen commoner’s wealth, by the disintegrative, decadent phase of imperial decay, the Elites held wealth on the scale of 10,000 times the wealth of the typical commoner. Elite villas were more like small villages centered around the excesses of luxury than mere homes for the wealthy and their household servants. Here is a commentary drawn from Turchin’s work:

“An average Roman noble of senatorial class had property valued in the neighborhood of 20,000 Roman pounds of gold. There was no ‘middle class’ comparable to the small landholders of the third century B.C.; the huge majority of the population was made up of landless peasants working land that belonged to nobles. These peasants had hardly any property at all, but if we estimate it (very generously) at one tenth of a pound of gold, the wealth differential would be 200,000! Inequality grew both as a result of the rich getting richer (late imperial senators were 100 times wealthier than their Republican predecessors) and those of the middling wealth becoming poor.”

Following in Ancient Rome’s Footsteps: Moral Decay, Rising Wealth Inequality (September 30, 2015)

We can be quite confident that these powerful elites reckoned the Empire was permanent and its power to secure their wealth and power was effectively unlimited. But alas, their fantastic wealth vanished along with the rest of the centralized, over-extended, complex and costly Imperial structures…

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Danish and Swiss Banks to Charge Customers 0.75% Interest on Large Deposits – Mish Talk

Posted by M. C. on September 23, 2019

Coming to your bank soon!

https://moneymaven.io/mishtalk/economics/danish-and-swiss-banks-to-charge-customers-0-75-interest-on-large-deposits-Pu8bhyF1rkaOlu-VDBzlgw/

Mish

by

Last week, Denmark’s central bank cut its deposit rate to -0.75%. Banks will pass this on to large customers.

Please consider Denmark’s Jyske Bank Lowers its Negative Rates on Deposits.

Jyske Bank said on Friday people with more than $111,100 in their bank accounts will be charged more for their deposits as it seeks to pass on some of the costs of recent rate cuts by the European and Danish central bank.

Jyske Bank, Denmark’s second-largest bank, said it would introduce a negative interest rate of 0.75% for all corporate deposits and for private clients depositing more than 750,000 Danish crowns ($111,100) from Dec 1.

Last week, Denmark’s central bank cut its key deposit rate to minus 0.75%, a record low among developed economies. “It is a lot of money and we have to pass on part of this bill to our customers,” he said. “I don’t hope that we will have to go lower but I don’t dare to promise it.”.

Denmark’s largest bank, Danske Bank has said it has no plans to introduce negative interest rates on deposits. Switzerland’s UBS has said it will impose a negative rate of 0.75% on clients who deposit more than 2 million Swiss francs ($2 million). ($1 = 6.7559 Danish crowns)

Simple Question

If you live in Denmark and have a bank account in excess of $100,000 or so, why would you have it at Jyske Bank which charges 0.75% while Danske Bank, the country’s largest bank doesn’t?

Possibilities

  1. There is something seriously wrong at Danske Bank and people don’t trust it.
  2. Danske Bank welcomes deposits and can do something with the money. But if so, at what risk?

Any Danish readers care to answer?

Perhaps we have an answer from Bloomberg in the following discussion.

Jyske Shares Jump on Interest Rate Charge

Bloomberg reports Negative Rates Just Got Real for a Record Group of Bank Clients

Shares in Jyske closed more than 5% higher marking their best performance since December 2017, as investors calculated the impact that the new policy will have on the bank’s net interest income.

Jyske has “set the ball rolling,” said Per Hansen, an investment economist at broker Nordnet.

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