Gold and Bitcoin in the War on Cash

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Gold and Bitcoin in the War On Cash

Global commerce is gravitating towards digital payments, with smartphone apps, credit cards, and bank transfers gradually replacing cash as the everyday medium of exchange.

But while this might be an expected technological evolution, economists and governments have got on board, and are pushing to abolish cash completely and deprive honest people of their ability to choose a method of payment.

Leading the charge in this War on Cash are Keynesian economists Kenneth Rogoff with his latest book ‘The Curse of Cash’, and Citibank advisor Willem Buiter. By hoovering up all the banknotes and coins, these economists suggest that the authorities could plug the leaks in the financial system, increasing efficiencies and keeping a closer eye on criminal activity. 

But while digital money might leave a perfect audit trail for law enforcement, it would also remove the last shreds of anonymity enjoyed by the innocent. Politicians could easily implement crippling capital controls, and also effectively push through unpopular fiscal policies like negative interest rates that effectively punish savers in a bid to stimulate the economy. Even worse, digital government currency would leave citizens vulnerable to the expropriation of funds to pay for national debt and the risk of sudden shutdown — either from government censorship or cybercriminal activity.

The occupying forces pushing for the end of cash are governments and central banks, who have fired the first shots by removing high denomination bills in India, the EU, and elsewhere.

Such efforts have faced little resistance, with a third of the population in Europe and America happy to trade convenience for civil liberties. Unfortunately, those unwilling to give up this last bastion of privacy are still likely to be caught in the crossfire, and forced to tolerate a method of payment that undermines the key role of money as a store of value. 

The war on cash and gold

The same battle between fascism and liberalism that played out in the twentieth century is now playing out digitally on the internet. The free market of money is being threatened by fiscal totalitarianism and enforced money. But just like the fascist regimes, a mandatory but flawed medium of exchange drives against the basic human instinct for self-improvement, and is ultimately unsustainable.

As founding Austrian economist Carl Menger wrote, “man himself is the beginning and the end of every economy” and despite government decree, the chosen medium of exchange is borne of individuals seeking efficiency.

This has been illustrated through history as government money has collapsed and citizens have resorted to other media of exchange—from grain contracts priced in dollars in Argentina, to cigarettes in rural Iraqi villages after the US invasion,

If the war on cash is won by the banks and we are all forced to transact digitally, it won’t be long before negative interest rates and other economic experiments come into play. And if citizens get sick of watching their money melt away like a block of ice in the summer sun, we could see a widespread return to sound money in the form of gold.

While such an eventuality might never happen, gold remains a good way of securing your assets outside the banking system as a sort of insurance.

Even Rogoff, the economic architect of the war on cash, agrees that gold is the antidote for the common man. As cash supply dwindles, he believes that the yellow metal will increase in value. 

“I suspect gold’s value will go up in real terms. I think the trend towards digital currencies will strengthen the value of gold,” Rogoff told Gold Investor magazine in February 2019. “As part of a larger portfolio allocation, it seems very reasonable to me.” 

The war on cash and bitcoin

With no way to escape the government’s control of the money supply, Rogoff expects that gold and other precious metals may rise in value.

But while goldbugs are squirreling away fortunes into hidden vaults in the Swiss alps that are accessible only by helicopter, they cannot protect funds from governments that have the ability to change the law to suit their own purposes.

With modern technologies like cyber surveillance, governments are now far more powerful than they were in the 1930s when President Roosevelt seized the gold of US citizens after passing the Emergency Banking Act of 1933. In the increasingly interconnected modern world, a global campaign to seize gold, or even a national campaign — has higher chances of success, with even far-flung foreign depositories vulnerable to plunder.

With no physical presence, bitcoin has an advantage over gold because it is effectively non-confiscatable — existing only as a string of code distributed in nodes around the world. 

With bitcoin, the possession of the private keys effectively equates to ownership. Thus the cryptocurrency can effectively be stored away from the physical realm — simply by memorizing a few phrases. The funds can then be accessed anytime, from any location, as long as you have internet access (and even without the internet by connecting to Blockstream’s satellite.)

As for the possibility of being seized by authorities, there is still the possibility of a five dollar wrench attack where the threat of violence is used to force an individual to give up their keys. But as private keys are simply a string of code, ownership can be obscured using privacy services so it is not possible to link the individual to the account on the blockchain.

While the government might try and ban bitcoin or attack it, doing so would be like trying to bring the internet down. As Saifedean Ammous suggests in his book The Bitcoin Standard, the only effective way for governments to kill bitcoin is by making “the economic incentive to use Bitcoin irrelevant — to make the demand for using Bitcoin go away at the source.”

It is not difficult to imagine that such a decentralized stateless currency would become extremely appealing for those caught in the crossfire of the war on cash.

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