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Don’t Be a Casualty in the “War on Cash”

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Joel BaumanThis article was submitted by Joel Bauman, SchiffGold Precious Metals Specialist. Any views expressed are his own and do not necessarily reflect the views of Peter Schiff or SchiffGold.

In the last few decades, we have seen an international trend towards a “cashless world.” Physical currency is becoming relatively scarce and the world’s money supply is made up of almost entirely electronic funds. Governments and banks are waging a war on cash and you don’t want to become a victim.

According to the Federal Reserve, in July of 2013, the total amount of physical currency in the world equaled $1.2 trillion, most of it held outside the United States. This accounted for a mere 7.7% of the total $15.5 trillion money supply. (Cash, checking/savings accounts, money market accounts, stocks and bonds) The percentage of physical cash in relation to electronic funds has been steadily decreasing over the last 50 years.

Interestingly, even with the diminishing purchasing power of the US dollar, the face value of Federal Reserve notes has also been decreasing. Today the highest denomination produced by the Federal Reserve is the one hundred dollar note. US currency used to include denominations of $500, $1,000, $5,000, and even $10,000. In 1969, the Federal Reserve began taking these higher denominations out of circulation. Recently, a former US Treasury Secretary floated the idea of doing away with the $100 bill as well.

This active elimination of cash by the government is supposedly being done in the name of security. The government claims electronic cash is preferable because it deters terrorism, money laundering, and counterfeiting. While this sounds rosy, I would argue the primary agenda has little to do with security, but is focused instead on keeping wealth within the financial system. With fewer exchanges involving physical cash and more electronic transfers, the government can easily observe and tax financial transactions. A cashless system also allows central planners to more effectively utilize negative interest rates to “encourage” people to spend instead of save.

While the elimination of cash benefits governments with more efficient taxation and central planning, banks favor it because of the increase in fees and regulatory power a cashless society offers.  Less physical currency also means larger bank deposits. The increase in banks deposits correlates with an in increase in the money supply. This is true because banks are only required to hold a fraction of the deposits when they lend out and invest deposits, i.e. fraction reserve banking.

When you boil it down, the cashless society ultimately means you have less control over your own wealth.

In the coming years, I believe we will see increasing pressure by governments and large banks to discourage liquid wealth held outside the banking system. Physical cash and precious metals will likely become harder to acquire in the future. There may even come a time when coins and Federal Reserve notes are no longer considered legal tender and the world moves into a completely cashless society. It was Citibank’s chief economist, Willem Buiter, who advocated for the removal of all physical cash in circulation.

The good news is unlike paper Federal Reserve notes, the intrinsic value of precious metals can never truly be condemned by any government. Gold’s value and its use as money was determined by the free market, not the government. In fact, the market has selected gold and silver as money for thousands of years.

As we continue to progress further into a cashless society it’s wise to move electronic dollars into physical gold and silver. It’s one sure way to protect yourself and not become a casualty in the “war on cash.”

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7 thoughts on “Don’t Be a Casualty in the “War on Cash”

  1. Yves Baggi says:

    Governments can also ban gold as a transactional tool or require you to ‘register’ gold….

    It’s not like they’re going to become more reasonable as we all approach financial collapse

  2. Newell Franks says:

    Good article. The problem I see with holding precious metals, especially gold, is our government has shown by prior action that they are more than willing to confiscate private gold. Franklin Roosevelt issued a clearly illegal executive order (6102) on 5 April 1933 that made it illegal for Americans to own gold except as jewelry (could not risk offending 50 million women at the time). The order applied to gold coins, gold bullion, and gold certificates. The penalty was $10,000 ($200,000 in today’s currency) in fines and 5-10 years in prison. People were given one month to comply with the illegal order. People received $20.67 per ounce in paper currency for the gold they turned in. Artists, jewelers, dentists and manufacturers that used gold were exempt from the order. Individuals could have $100 in face value worth of coins as in a coin collection. There was also language protecting “Rare and unusual coins” which protected coin collections held by museums from being confiscated. Many arrests and prosecutions happened as a result of this illegal act. Later congress got in on the act and levied fines of twice the value of the gold. Foreigners in the USA and foreign companies also had their gold confiscated. This travesty was not fully removed until 1977. I look for a speedy return of this unconstitutional and illegal insanity sometime very soon…

    • James says:

      What would be the purpose of the gov confiscating physical gold? If they had
      all the gold in the world it would not put a dent in our multi-trillion debt.
      What would the price/oz be? No one would sell for less than the spot price.
      How would the gov pay us for this gold?

    • Tandalayo says:

      Heads up…Most people did not comply. Please see the stats on that.. No one is bound to comply with an illegal, tyrannical govt..ever.. You are a living man, woman..born on the land..and not under their corrupt UCC codes or rules..(which are NOT laws).. You are a separate individual, a living entity..not a dead corporation..as you did not agree to a birth certificate and did not know that accepting a social security card or a marriage certificate tied you forever to a corrupt, tyranny. You are a free agent..and no one is over anyone..ever..for any reason…

    • ***Note from the Author***

      I have most of my savings in precious metals and I’m not concerned about confiscation and neither is Peter.

      Most of the time you hear about “gold confiscation,” it’s from numismatic coin dealers who are just trying to steer honest investors away from buying bullion and into more expensive collectible coins with a 20-50%+ profit margin.

      It’s actually a myth. Gold was never confiscated in the Great Depression, instead it was nationalized and investors were paid fair market value for their holdings. We were also on a gold standard at the time, which we came off of so that we could print away our debt. We have a printing press today and can address debt levels with the click of a button.

      Also, because more than half of our currency resides outside the US, Obama would be hard pressed to nationalize gold. Banks and brokerage houses around the world would suspect something was wrong with the dollar, and they would immediately dump their dollars and buy gold and silver. This would cause the dollar to plummet and have the opposite effect of what policy makers intend.

      If nationalization does one day become a real threat one day, it would occur because rising gold prices would call into question the integrity of the dollar. At this point, I would be more than happy to trade in my $5000 gold for real estate or something else of tangible value.

      I would be more worried about confiscation through inflation, or a nationalization or our retirement plans, than a confiscation of gold. There is much more liquidity in our pension plans and IRA than physical gold. This is also the course of action we are seeing take place in Europe right now.

      If you’re truly concerned about confiscation, I’d suggest buying silver, which was never nationalized and has more upside potential anyway.

  3. Robert Greenwald says:

    Newell Franks observation should be addressed by the head of the company i.e. Peter Schiff himself. To me this is a very real fear of any person who has any knowledge at all of American Domestic Policy and its abuse of its own citizens. The benefits of precious metals could disappear if the government wishes. Just as Fiat currency has value because the government says it does, the government can make gold close to valueless if it wishes. Please, LETS DEBATE THIS ISSUE, AS IT IS VERY IMPORTANT.

  4. Mr. Wolfgang says:

    The answer to this is bitcoin. Transactions using the Blockchain cannot be tracked by any government or taxed because of their encryptive capabilities.
    Will Western governments eventually try to enact capital controls to keep all monies within their failed system? Yes. But they cannot stop people from voting with their feet. Freedom can never be completely eradicated from the earth. There will always be some place that is free. That is where you should go.

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