Central banks managed to lift markets again on Monday, but how long can they pull it off, and, more importantly, will they come after our cash to make sure their policies bear fruit?
In Europe, noise about "going cashless" or, in the parlance of to those who are in favor of the measure, "cash free," is intensifying, and so are the fears that cash will be abolished.
In the U.K., well known financial magazine MoneyWeek has even started a petition under the headline "Hands Off Our Cash", asking the government to guarantee that cash will not be abolished from use and that negative interest rates will not "undemocratically" be imposed on British savers.
Fears that cash will be abolished are rising in other countries across Europe too, just as the European Central Bank (ECB) and the Swedish central bank, the Riksbank, pushed their interest rates even deeper in negative territory. Denmark and Switzerland also have negative interest rates in Europe, while recently the Bank of Japan became another major central bank to go below zero.
Official statements regarding the future of cash aren't reassuring. Back in September last year, the Bank of England's chief economist Andrew Haldane said that abolishing cash would help the central bank to implement a negative interest rate policy more efficiently.
"If global real interest rates are persistently lower, central banks may then need to think imaginatively about how to deal on a more durable basis with the technological constraint imposed by the zero lower bound on interest rates," he said.
"A more radical proposal still would be to remove the ZLB (zero lower bound) constraint entirely by abolishing paper currency. This, too, has recently had its supporters (for example, Rogoff (2014)). As well as solving the ZLB problem, it has the added advantage of taxing illicit activities undertaken using paper currency, such as drug-dealing, at source," Haldane added.
On Monday, during a hearing in the European Parliament, European Central Bank President Mario Draghi stressed the fact that there was "increasing conviction in world public opinion" that the 500 euros ($558) banknote, the highest euro denomination, was used for criminal purposes.
While the head of the ECB stopped short of actually saying the banknote will be scrapped, the Financial Times reports that an informal decision to withdraw the bills from circulation has already been taken by the central bank.
Reading this commentary by the Riksbank would definitely give cash-loving savers goose bumps: "In a system without cash, we can basically set negative interest rates without any problems at all. In that case, very negative nominal rates, as a part of an expansionary monetary policy, cannot be ruled out."
It looks like the level of financial repression that central banks deem necessary to persuade prudent savers to spend their stash to rescue the economy is higher than a cash-based society is prepared to endure. For that, say critics, governments will do everything in their power to abolish cash, and this process has already started.
Technological advances make this an easy task. In Europe, contactless payments are more and more widespread -- you just approach your card to the reader to pay, rather than swiping it and signing to confirm the transaction or keying in a four-digit pin. It's quicker and easier than cash, even.
For the moment, there is a limit to the amount one can spend that way, but it's very easy to raise or eliminate that limit. Another way to pay without cash, but as conveniently and quickly, is by using mobile payments, which again is something that is catching up.
Want further proof that they're trying to force us to become a cashless society? Hasbro came up with a Monopoly game that does away with cash altogether. Instead, it uses a tiny ATM on which players scan their cards and it keeps track of financial transactions -- getting them while they're young.
One way to deal with this issue, as a saver, is to invest your money rather than keep it under the mattress. Here are some articles from Real Money that will help you do just that: