First Major Offensive in War on Cash
By Don Quijones, Spain & Mexico, editor at WOLF STREET.Terrorists are no longer public enemy number one. Nor are drug lords, people traffickers, arms dealers, cyber terrorists, or any other unsavory do-badder. Today, the biggest threat to global peace and security is physical cash, a means of exchange that has flourished for over 4,000 years but which now stands accused of being the world’s biggest enabler of criminality.
A Criminal’s AccompliceThe latest person to publicly highlight the deadly threat posed by cash is Peter Sands, the former CEO of the British bank Standard Chartered, who just published a report for Harvard Kennedy School of Government imploring central banks around the world to stop issuing high-denomination notes and bills. They include the €500 note, the $100 bill, the CHF1,000 note and the £50 note.
“Such notes are the preferred payment mechanism of those pursuing illicit activities, given the anonymity and lack of transaction record they offer, and the relative ease with which they can be transported and moved,” the report warns. In other words, only criminals use cash. High-denomination notes, the report adds, “play little role in the functioning of the legitimate economy, yet a crucial role in the underground economy.”
Sands is no doubt a leading authority on the role of cash in the criminal economy, having led a company that schemed with the government of Iran to avoid U.S. sanctions and “hide from regulators roughly 60,000 secret transactions, involving at least $250bn, and reaping SCB hundreds of millions of dollars in fees.”
That’s according to the New York State department, which in 2012 fined Standard Chartered close to a billion dollars for leaving the US financial system “vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity.” Two years later the bank’s anti-money-laundering systems were found wanting, and in 2015 it was once again accused of breaking Iran sanctions.
The fact that the bank compiled an extensive rap sheet under Sands’ watch does not in any way disqualify him from leading an investigation on the enabling role of cash in organized crime. On the contrary, it makes him the perfect point man. Sands is also a member of the Board of Directors of the Institute of International Finance, the global association of financial institutions, and chairman of their Special Committee on Effective Regulation.
First Major Offensive in War on CashIn his report, Sands and his illustrious colleagues urge the world’s largest 20 economies to “take up the matter” – i.e. broach the subject of banning large denominations of cash – at the next G20 summit in China. If the world’s leading policy makers follow through on the report’s advice, it will be the first major offensive in the global war on cash.
Sands is not the first senior banker to scapegoat cash for society’s ills. For years assorted bankers, politicians, technocrats and business leaders have waged an intensifying war of words against physical currency [The War on Cash in 10 Spine-Chilling Quotes].
A few weeks ago Norway’s biggest bank called for its outright abolition after guesstimating that as much as 60% of the country’s physical cash is out of the central bank’s control. And for central banks, control is everything.
In a similar vein, John Cryan, the CEO of Deutsche Bank, predicted that cash “probably won’t exist” in ten years time. “There is no need for it, it is terribly inefficient and expensive,” Cryan said.
This is news to most people in Germany, where approximately 80% of all transactions are conducted in cash (in the US and UK, it’s less than 50%). Cash is also the dominant form of payment for larger transactions, according to a recent survey. Does that mean that most Germans are, in the logic of the report’s findings, criminals? Obviously not! Or at least not yet! They just believe that using cash is a good way of keeping track of their personal finances as well as protecting their privacy and anonymity. Indeed, as the survey points out, the real point isn’t so much that Germans love cash. It’s that they loathe consumer debt.
The Real Reason for Offing CashOver the last few years every imaginable reason has been trotted out for doing away with cash, from creating a more inclusive financial system to making life easier, more comfortable and more productive. A Bloomberg article called cash just about every ugly name under the sun, including “dirty and dangerous, unwieldy and expensive, antiquated and so very analog.”
However, the one reason for offing cash that hardly ever gets a mention is that it represents a limiting factor on central banks’ ability to continue their insane negative-interest-rate experiment, as WOLF STREET reported last year:
Cash significantly limits central banks’ ability to continue conducting arguably the greatest financial heist of the modern age, i.e., negative interest rate policy (NIRP). The only way that central banks can maintain negative interest rates ad infinitum is by abolishing cash altogether, as the Bank of England chief economist Andrew Hadlaine all but admitted. As long as cash exists, there’s no way of preventing depositors from doing the logical thing – i.e. taking their money out of the bank and parking it where the erosive effects of NIRP can’t reach it. [First They Came for the Pennies, in the War on Cash]Cash also serves as a means of exchange in which the relevant rent seekers (banks, credit card companies, tech firms) are left out of the equation, unable to wet their beaks in commissions and fees and to collect the treasure of consumer data that comes with electronic payments. Throw in the nagging fact that in a world where physical currency continues to exist, government and corporations cannot track and trace your every movement, and it’s not hard to understand why cash is now public enemy number one in many of the world’s jurisdictions. By Don Quijones,Raging Bull-Shit.
Then there’s the hundred-billion-dollar question. Read… The Big-Oil Bailouts Begin