Secret Federal Reserve Paper discusses adding Demurrage to US Cash

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Financial analysts are looking with horror at the concept of demurrage, but the central banks are seriously considering it, as part of their world wide war on cash.

http://www.zerohedge.com/news/2015-05-16/secret-fed-paper-advocated-carry-tax-all-physical-cash

The Secret Fed Paper That Advocated a “Carry Tax” on All Physical Cash

Many commentators have noted that mainstream economists are calling to do away with cash entirely.

It would be easy to scoff at these proposals as completely insane if the Fed hadn’t published a paper back in 1999 suggesting the implementation of a “carry tax” or taxing actual physical cash using an expiration date if depositors aren’t willing to spend the money.

The author of this lunacy is a visiting scholar with the ECB, the Fed, the IMF, and the Swiss National Bank. The fact that two of those groups have already imposed negative interest rates (ECB and SNB) should give warning that these sorts of ideas are actually taken very seriously by Central Banks.

The paper, written 16 years ago, suggested that if the Fed were to find that zero interest rates didn’t induce economic growth, it could try one of three things:

1)   A carry tax (meaning tax the value of actual physical cash that is taken out of the system)

2)   Buy assets (QE)

3)   Money transfers (literally HAND OUT money through various vehicles)

Regarding #1, the idea here is that since it costs relatively little to store physical cash (the cost of buying a safe), the Fed should be permitted to “tax” physical cash to force cash holders to spend it (put it back into the banking system) or invest it.

The way this would work is that the cash would have some kind of magnetic strip that would record the date that it was withdrawn. Whenever the bill was finally deposited in a bank again, the receiving bank would use this data to deduct a certain percentage of the bill’s value as a “tax” for holding it.

For instance, if the rate was 5% per month and you took out a $100 bill for two months and then deposited it, the receiving bank would only register the bill as being worth $90.25 ($100* 0.95=$95 or the first month, and then $95 *0.95= $90.25 for the second month).

It sounds like absolute insanity, but I can assure you that Central Banks take these sorts of proposals very seriously.  QE sounded completely insane back in 1999 and we’ve already seen three rounds of it amounting to over $3 trillion.

 

No one would have believed the Fed could get away with printing $3 trillion for QE in 1999, but it has happened already. And given that it has failed to boost consumer spending/ economic growth, I wouldn’t at all surprised to see the Fed float one of the other ideas in the coming months.

Indeed, JP Morgan has already begun implementing a similar scheme by forbidding the storage of cash in its safe deposit boxes.

As of March, Chase began restricting the use of cash in selected markets, including Greater Cleveland.  The new policy restricts borrowers from using cash to make payments on credit cards, mortgages, equity lines, and auto loans.  Chase even goes as far as to prohibit the storage of cash in its safe deposit boxes .

 

In a letter to its customers dated April 1, 2015 pertaining to its “Updated Safe Deposit Box Lease Agreement,”  one of the highlighted items reads:  “You agree not to store any cash or coins other than those found to have a collectible value.”  Whether or not this pertains to gold and silver coins with no numismatic value is not explained. 

https://mises.org/blog/chase-joins-war-cash

Here is the single largest bank in the US, forbidding depositors from storing cash in a storage box or safe deposit box at their bank. And virtually no one even responded in outrage.

 

Again, the Fed has declared a War on Cash, and a “carry tax” is coming.

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Best Regards

Phoenix Capital Research

 

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