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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The way this would work is that the cash would have some kind of magnetic strip that would record the date that it was withdrawn.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

 

Gold Backed Cryptocurrency Is Here. Or is it?

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Since the US government shut down the e-currencies e-gold and similar, cryptocurrencies are now being launched.  How can they be used?  Will they survive?  How are they different from others?  Will they get shut down like e-gold?  Here is one article, and excerpts from a few others:

http://www.businessinsider.com/hayek-cryptocurrency-backed-by-gold-2015-5

There’s a new cryptocurrency coming, and it’s backed by gold

  • May 5, 2015, 9:47 AM

Bullion Vault/Flickr

 

There’s a new cryptocurrency coming to the market.

What makes it unique to existing cryptocurrencies like Bitcoin?

It’s backed by gold.

Anthem Vault, the metals and technology company, will launch the coin on May 25.

The coin will “be valued at 1 gram of gold at the day’s market price, [and] will serve as a more secure store of value than Bitcoin,” according to the press release. It will be called the Hayek, “after the Nobel-winning Austrian economist Friedrich Hayek.”

Anthem Blanchard, the CEO of Anthem Vault, told Business Insider that “gold is arguably the most trusted store of value of all time,” which is why he chose it to back his new cryptocurrency.

When asked about the recent volatility in the price of gold, Blanchard said, “If you look at last year, gold did go down in dollar terms, but it went up in almost any other currency terms.” He also noted that, “Forex has gotten even more volatile, in the last 10-15 years, which is scary to me.”

One use case for the Hayek coin, says Blanchard, is an alternative payment system for people in developing countries with volatile currencies. They could pay each other with the equivalent value of gold, if they each had Hayek coin wallets.

The other use case, he said, is if there is a massive distributed denial of service attack on the modern financial system.

Gold prices haven’t exactly been stable, at least in dollar terms.

“Talking with friends of mine in the intelligence agencies, they say this is a real threat,” he said. An attacker (he used the Russians as an example), “could create a massive DDoS attack, make the [financial] system inoperable. Ultimately this is how we rely on our payments.”

If a big attack hit the computers that clear payments in the banking system, people would be unable to pay for things. Bitcoin and other cryptocurrencies based on the same technology don’t work like that. There’s a decentralized system of confirming that a payment has been made, so systemic failure is (almost) theoretically impossible.

Eventually, Blanchard would like to branch beyond gold.

“We want to ultimately make every metal spendable. You aren’t going to be able to take practical delivery of plutonium or uranium in your house. But there’s no reason why you couldn’t have ownership of that metal,” he said.

Are you ready for plutocoin?

Comment:

The Truth About “Gold Backed” Cryptocurrencies

So are they really the first? They certainly aren’t the first to launch a “Gold backed” cryptocurrency. The first I recall reading about was NoFiatCoin (XNF) which trades on the Ripple Network and was launched earlier this year.
….
So… Anthem Vault’s new offering may be the first open source currency in this space (although some of those mentioned do trade on Ripple, which is an open source platform), but it’s far from something new and exciting. Let’s hear more about it though…
So the whole currency is “backed” by only 100 grams of Gold (spot value currently US$4192)? Based on 10 million coins, that means each coin will be worth 0.00001 gram of Gold. Talk about an anticlimax, this is nothing more than a marketing stunt designed to attract new customers to the brand…..
Let’s face it though. Most of these “Gold backed” cryptocurrencies are a complete farce.
Comment:

The Bitcoin Crowd Reaches Out to the Gold Bugs

On the spectrum of currency ideologues, gold bugs and Bitcoin enthusiasts occupy equal but opposite positions. They’re both suspicious that governments are going to meddle around with normal money so much that it becomes useless—it’s just that one group thinks math is the antidote and the other believes in hoarding metal bars.

This week has seen the emergence of two separate plans to have the best of both worlds. Ripple, a digital payments network that allows people to transact in a range of virtual and traditional currencies, said it had developed a way for people to transact in a digital form of gold. The announcement on Tuesday came on the heels of a company called Anthem Vault saying it had created its own virtual currency backed by gold, known (inevitably) as Independence Coin.

Anthem Hayek Blanchard, who runs Anthem Vault, believes the time has come to convince believers in the gold standard that Bitcoin is more than a Ponzi scheme. Finally the two armies can join forces! “We don’t need to fight. We can coalesce,” he told Bloomberg News on Monday.

Ripple, on the other hand, hasn’t actually created a new currency. Instead, it has reached a deal with GBI, a precious metals provider, to allow people to buy gold that will sit in GBI’s vaults for an annual fee of 0.5 percent of the value of the holdings. That stash can be used as the basis for transactions on Ripple, so that one side of the transaction spends gold and the other side receives Bitcoins or another form of payment…..

READ MORE

Anyone Can Now Trade, Send and Spend Physical Gold Online via GBI’s Ripple Gateway

Leading Institutional Precious Metals Provider Brings Greater Liquidity to Gold With Integration to the Ripple Protocol

NEW YORK, NY–(Marketwired – Jul 29, 2014) – GBI is proud to announce that it has launched a digital, gold-backed currency via the Ripple protocol. The protocol allows clients the ability to spend their physical gold (XAU) balance online, send it electronically to friends and family, or spend it as a currency for payment anywhere Bitcoin is accepted. This new and unique capability comes from GBI’s just-launched Ripple gateway. All XAU trades are backed with physical gold deposited in six secure vaults around the world. Select market makers have already been issued XAU balances and have commenced trading.

Ripple is an open-source, decentralized payments protocol that enables anything of value to be traded through a global value web. Market makers on Ripple seamlessly exchange different units of value for trading and transactions. For example, when GBI clients pay for goods and services with gold, it can be automatically converted into dollars or another preferred unit of value for delivery to a merchant.

“Ripple changes the dynamics of value, allowing for a real-time market that can instantly trade between gold, currency, mobile minutes, and more,” said Steven Feldman, co-founder and CEO of GBI. “We have been leaders in combining technology and precious metals, and our integration into Ripple allows us to continue our push into digital currencies by enabling investors to now buy digital physical gold.”

US Government’s most recent attack on cryptocurrencies

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International Sovereign Man Simon Black reports on the US Government’s most recent attack on cryptocurrencies: A $700,000 fine placed against multiple currency transfer currency Ripple.

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May 6, 2015
Sovereign Valley Farm, Chile

Well, it was bound to happen sooner or later.

Our beloved amigos at the US Financial Crimes Enforcement Network (FinCEN), have just issued the first-ever ‘civil enforcement action’ against a virtual currency.

The offending criminal mastermind in this case? Ripple Labs.

If you’re not familiar, Ripple is a virtual currency platform that was once the darling of Silicon Valley, attracting top VC firms like Google Ventures and Andreessen Horowitz.

Ripple’s technology allows users to conduct financial transactions with one another — sending and receiving payments in cryptocurrencies like Bitcoin, as well as fiat currency.

Imagine Bitcoin meets Paypal… and you have the basic idea.

As part of its technology, the parent company Ripple Labs also created a native virtual currency called ‘XRP’, which is the second largest in the world after Bitcoin when measured by market capitalization.

Because of all of these features, Ripple Labs qualifies as a ‘money service business (MSB)’ according to FinCEN… which makes them subject to all sorts of regulations.

At the top of the list is the Bank Secrecy Act (BSA), which, contrary to its name, requires banks and MSBs to betray their customers’ financial secrets to the US government.

Specifically, the BSA mandates that all banks and MSBs file ‘suspicious activity reports’ if they “know, suspect, or have reason to suspect” that a transaction of $2,000 or more is ‘suspicious’.

And in the age of the USA PATRIOT Act, suspicious transactions are BIG BUSINESS for Uncle Sam.

Last year a record 2.4 MILLION suspicious activity reports were filed. That’s a 40% increase from 2013’s record year of 1.7 million.

As you can imagine, Ripple Labs failed to register with FinCEN as an MSB, nor did it submit suspicious activity reports.

In its complaint, FinCEN describes several of the oooooh-so-nefarious violations.

According to FinCEN, “In January 2014, a Malaysian-based customer sought to purchase XRP from [Ripple Labs], indicating that he wanted to use a personal bank account for a business purpose.”

HOLY JIHAD BATMAN!!!! Someone wanted to use a personal bank account for business purposes?!?! NUKE THE SON OF A BITCH!

I mean, seriously. This is the complete nonsense that keeps financial bureaucrats up at night: some guy in Malaysia wants to buy digital currency with his personal funds.

Whoop-dee-doo.

But what’s really wild is that Ripple actually DENIED the transaction. They just didn’t file the SAR.

So… even though Ripple didn’t actually ENGAGE in said ‘suspicious activity’, failing to file the SAR (with the appropriate TPS report cover sheet) was enough to land them in hot water.

End result — Ripple was dinged with a $700,000 fine.

Now, $700k is a pittance compared to the $9 BILLION that BNP Paribas was slammed with last year for doing business with countries that were former enemies-turned-BFFs of the US government — namely Cuba and Iran.

But it’s still a ridiculous penalty for having done nothing wrong.

Of course, it’s never about right or wrong. It’s about sending a message. And that’s exactly what FinCEN is doing.

By going after Ripple (a major player in the industry), FinCEN is trying to scare all the smaller players into ratting out their customers.

This, after all, is what desperate, bankrupt governments have done for millennia —

Step 1: Track down where everyone’s money is.

Step 2: Take it.

You don’t see rich, stable countries doing this sort of thing. In fact, the exact opposite.

An official from Hong Kong’s Treasury recently stated that: “the Government does not consider it necessary to introduce at the moment new legislation to regulate trading in such virtual commodities or prohibit people from participating in such activities.”

Night and day difference.

We’ll continue to see these steps in the US and in Europe. Tracking down virtual currency transactions. Banning cash. Anything they can do to keep your money trapped in the system where they can keep their eyes on it.

It’s all the more reason to move a portion of your savings out of that system and into somewhere safe.

 

Until Tomorrow,
Simon Black
Founder, SovereignMan.com

 

 

Welcome to Our Blog!

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Welcome to the GGCurrency Blog.  We will share our thoughts here, news about the GGCurrency project, answers to some of your interesting questions, and internet links which have been shared with us an (usually!) are germane to the subject.

We invite you to respond to on our Forum.

Dan Ecklund, MD

Trustee, GGTrust

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