The case for retiring another ‘barbarous relic’

23-Aug (Financial Times) — The fact that people treat cash as the go-to safe asset when banks are teetering is heavy with historical irony. Paper money was once the symbol of monetary irresponsibility. But even as individuals have taken recent crises as reasons to stock up on banknotes, authorities would do well to consider the arguments for phasing out their use as another “barbarous relic”, the moniker Keynes gave to gold.

Already, by far the largest amount of money exists and is transacted in electronic form — as bank deposits and central bank reserves. But even a little physical currency can cause a lot of distortion to the economic system.

…Fortunately some benefits of electronic money can be reaped without banning all cash outright. Cash could remain accessible but at a cost, so that its users pay for the privilege of anonymity — and remain affected by monetary policy. Dated banknotes could see their value as legal tender gradually fall over time; banks could be charged for swapping electronic reserves for physical cash and vice versa. The benefits of cash are significant — but they need not be offered for free.

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PG View: Positively insidious. In this scenario, you become a hostage of a banking system that pays you next to nothing (or less than nothing) for the use of your money. If you opt to hold physical cash, it comes with an expiration date.

Take some of your wealth out of the banking system and store it in gold. The yellow metal is shelf-stable, with no expiration date!