Is cash incompatible with a free market?

in #politics8 years ago (edited)

Is cash really consistent with a free market?

Bloomberg ran an article by Narayana Kocherlakota with the headline, "Want a free market? Abolish cash". The move to eliminate cash continues. But now, with a new argument -- cash is anti-free market.

Sounds good, right?

Finally, someone is going to argue that much as freedom-loving people like cash, it's still a government monopoly that is a vehicle for market manipulation.

Here's the crux of the argument:

[G]overnments -- by issuing cash and managing inflation -- put a floor on how low interest rates can go and how high asset prices can rise. That's hardly a free market.

Right, this makes sense. Therefore, governments should not issue cash or manage inflation so that we have a free market rather than the government engineering interest rates and asset prices.

Where it goes off the rails:

Except, then it says this:

If cash were abolished, I would support the adoption of two complementary measures. First, instead of targeting a positive inflation rate, central banks could target true price stability by aiming to keep the level of prices constant over time. (To be clear, this would be disastrous unless cash were eliminated first.)

Wait, I thought we were getting rid of cash to have a free market determine interest rates and asset prices rather than letting governments impose them. Central banks are effectively governments. All you've done is eliminate a restriction on the power of governments -- before they couldn't really impose negative interest rates effectively, now they can.

And then it says this:

Second, currency does provide a service beyond being a store of value and a medium of exchange: It's anonymous and thus ensures the privacy of transactions. In its absence, governments would have to allow the private sector to offer alternatives with the same attractive features.

Without rolling back the entire KYC/AML/BSA regime, the private sector can't possibly ensure the privacy of transactions or any kind of anonymity. They're liable for facilitating things like terrorist financing and money laundering. They have to know everything. And they have to tell each other everything because transactions involve more than one company and they're all liable.

Is he saying we need to roll back the entire KYC/AML/BSA regime to let central banks impose negative interest rates on people's savings? And this is somehow pro-free market because it gives central banks more power to control interest rates?

I must be missing something.


JoelKatz

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Great post. We can say cash is necessary evil. Keep sharing more posts @joelkatz

The real problem that everyone is missing is what that cash represents. A paper note was originally intended to be a receipt for something, namely a piece of metal in a vault. The bankers have known for thousands of years that people trade receipts without physically trading the object of the receipt- so they just print up 10-100x as many receipts and boom, they're instantly 100x more wealthy than you. It's actually far worse than that, but that's the general idea of fiat currency and fractional reserve.

So all fiat currencies, whether paper or digital, are entirely rigged and built for fraud from the ground up. There is nothing free about this fraud. The deck is stacked against everyone except the bankers who manipulate the issuance of currency and credit (debt) from behind the scenes, and answer to nobody, not even government.

money vs. currency

money is needed in a free market, currency does nothing good at all for anyone but the people making it out of thin air.

money is needed, currency is the death of the free market.

it is central banks which should be abolished or there will never be a free market. the central bank is the hub of government/banker control, which is demonstrated in the communist system. one of the main tenets of communism is the central bank. cash is integral to free markets. the only part government should have in it, if any, is keeping any bank from becoming too powerful. also all cash should be privatized. competition being the life blood of free markets. did i miss anything?

The incompatibility of the "sustainable solvency of banks" under a negative interest rate scenario is likely the motive for coming up with these silly explanations. The truth would not go down all that well.

I was working on the next article on my War on Cash series when I saw the article that inspired me to write this post. The article I'm working on is about the forces that conspire to fight the war on cash. Definitely part of it is financial institutions that want to ensure that they remain profitable and become more and more essential. Another part is regulators that believe that the more information they have, regardless of its quality or targeting, the better they can fight crime.