Money

Die deutsche Antwort auf Negativzinsen: Bankschließfächer

Für unsere deutschen Leser stellen wir unseren ersten Artikel auf deutsch vor. Übersetzt und ergänzt von einem früheren veröffentlichten Artikel.

Die japanische Antwort auf Negativzinsen: Anschaffung von häuslichen Geldschränken. Andererseits die deutsche Haltung: Abhebung von Bankkonten und Verstauung in Bankschließfächern. Beide Methoden sind als Reaktion gegen eine Zinzahlung für Bankkonten verständlich. Der deutsche Fall ist besonders merkwürdig, weil die Bundesbank vor ein paar Jahren erklärte, die durchschnittliche Effektivrendite sei seit 40 Jahren negativ gelaufen. Das führt zur Frage, warum sind diese Kontoabhebungen nicht früher passiert? Nur jetzt, da nominale Zinsraten auch negativ sind, ist die Fassade von Bankkonten als sicherer Geldversteck endlich für Otto Normalbürger weggerissen.

No Fed Hike Anytime Soon

After May’s dismal jobs report, the odds of the Federal Reserve raising the target federal funds rate anytime soon are just about nil. Remember that the Fed has declared itself for the past several years to be “data dependent”, meaning that they are looking for good economic news and data that indicates that the economy has gotten back to normal. And what do they mean by “good news” or “back to normal”? Why, the overheated boom-period growth rates we last saw at the height of the last housing bubble. That is why the Fed will not be raising rates for a long time.

Possible Immediate Effects of the €500 Note’s Abolition

The ECB officially decided to end production of the €500 note yesterday, with production winding down at the end of 2018. Ostensibly this was done to prohibit the use of the €500 note by criminals and terrorists. While this is just one step in the long-term War on Cash, what might some of the more immediate effects be?

1. Increased Demand – Knowing that the €500 note is going to be phased out, expect those holding cash and those wanting to hold cash in the future to increase their demand for €500 notes. Whether the ECB will cater to this demand by allowing higher amounts of €500 notes to be printed before the ultimate phaseout date remains to be seen.

2. Premia on Notes in Good Condition – Given a finite number of notes in existence post-2018, it is not unreasonable to expect that €500 notes may trade at a premium to their face value in the future. Since they will remain legal tender and will be able to be redeemed at face value at banks for an unlimited period of time, they will be worth at least €500. But because they allow a much more compact transportation of money than €100 and €200 notes and because supply will now be fixed, they may begin trading at a premium to their face value. €500 notes in mint condition might eventually trade on black markets at €550, €600, or more. Bills in worse condition would trade at lower premia, until bills that were completely worn out would be traded in at banks for brand new lower-denomination notes.

3. More Counterfeit €500 Notes – Because the €500 note is being phased out, it will not receive any anti-counterfeiting updates that other notes will inevitably receive in the future. As counterfeiters become more adept at creating fake euro notes, they will target the €500 note since it will remain redeemable at banks and will undoubtedly be demanded even more on the black market. If counterfeiting of the €500 note occurs on a large enough scale, the ECB may eventually rescind the bill’s legal tender status and set an end date by which time all €500 notes must be redeemed.

You Know Your Inflation Is Bad When…

Inflation is Venezuela has gotten so bad that the Venezuelan government cannot afford to buy new money. As with many countries that have resorted to inflation to attempt to cure their economic woes, Venezuela has run out of paper to print new money and has had to resort to contracting with foreign firms to acquire new banknotes. The sheer scale of the money printing is so large that it could provide significant business to those foreign firms, assuming that the Venezuelan government has the ability or desire to pay them for their work. Venezuela has placed such strong capital restrictions on its economy that it risks running out of foreign exchange. Foreign companies won’t take bolivars as payment, they want dollars or euros, of which the Venezuelan government doesn’t have much left. Venezuelan companies find themselves in similar straits, with the country’s largest brewery being forced to shut down operations because it lacks foreign currency with which to purchase and import barley malt and hops to brew beer. While some may joke that a shortage of beer will lead to social unrest, it’s really not a joking matter. The problems faced by the brewery are faced by many other businesses that have to import goods.

Bitcoin Once Again Facing Scrutiny

Despite never having been linked to a single incident of terrorism, Bitcoin is once facing increased scrutiny from European politicians. The European Commission is set to update its anti-money laundering rules next month, which would force Bitcoin exchanges to comply with the same AML and Know Your Customer rules with which other financial institutions must comply. That likely won’t be the last time that Bitcoin faces scrutiny, as European governments are increasingly cracking down on Bitcoin, cash, and other payment methods that allow anonymity when making purchases. Every new terrorist attack in Europe is another opportunity for governments to crack down on Bitcoin and cash, sweeping more and more transactions within the financial system where they can be tracked and, most importantly, taxed. Talk of money laundering and terrorism is just cover for what ultimately are moves towards increasing revenue and enhancing control over people’s finances.

Bank Hackers, Electronic Money, and the War on Cash

In the aftermath of the bank heist targeting Bangladesh’s central bank, international financial network operator SWIFT has warned that its networks were compromised. Hackers have apparently accessed the network and used it to send a number of fraudulent payment orders. Why do hackers do this? In the apocryphal words of Willie Sutton: “Because that’s where the money is.” Why bother hacking individual bank accounts when you can instead hack an entire bank or even the backbone of the financial system?

Harriet Tubman, Andrew Jackson, or Something Else?

$1 Educational Series Silver Certificate. Image: National Numismatic Collection at the Smithsonian Institution

$1 Educational Series Silver Certificate. Image: National Numismatic Collection at the Smithsonian Institution

The responses to the Treasury Department’s recent announcement that Andrew Jackson would be replaced by Harriet Tubman on the front of the $20 bill have been many and varied. Progressives have lauded the inclusion of a black female abolitionist on US currency. Many Republicans have lauded Tubman’s selection as she was an evangelical Christian, gun-toting Republican. Others, such as Donald Trump, decried Tubman’s selection as a typical example of political correctness run amok. Is it really something to get worked up about, or is there maybe a better solution?

RIP €500 Note

Image: Wikipedia

Image: Wikipedia

It appears that the €500 note will die a slow death. Rather than being completely demonetized, production of the note will cease, but those holding notes will still be able to deposit them and exchange them. A complete ban seems to have been stymied due to strong opposition from Germany. German opposition to the note’s removal stems from a high rate of cash usage. Anyone who has traveled to or lived in Germany knows that Germans use cash for most of their tranactions, 79 percent of all transactions in Germany using cash versus 40 percent in the United States. This stems from the experiences of the Weimar-era hyperinflation, resulting in Germans not trusting the banking and financial system as much as Americans and other Westerners. Germans don’t trust credit and debt to the same extent that other nations do, thus the decision to eliminate the €500 note met with significant opposition from Germans. It helps, too, that Germany’s economy is the largest in the EU and that its former currency, the Deutsche Mark, is what lent the euro the credibility it has today. Further opposition to the war on cash in Europe is more likely to come from Germany than from any other country.