How the Bitcoin will change the financial system - save this ;)

I hereby publish my thoughts and much important information that will not be known to all of you. It's a lot of text but take the 15 minutes and do something for your financial education, what you read now you won't find in any manager magazine or business newspaper in the world.

First of all I would like to explain what the powerful ones of the financial world are currently planning.
It's about the totalitarian vision of the powerful.

The International Monetary Fund plans to introduce full supervised payment transactions and to punish citizens for cash payments in the future.

500 euro notes will no longer be accepted. Air travel and car rental are only possible by credit card. Newspaper articles obtrusively praise the cashless Swedish people and scourge the Germans for their embarrassing lag behind in questions of modern "smart" payment transactions. In advertising for every beer, young people routinely pass the credit card over the counter, and decent people nowadays only pay with their good name. Notice anything? A world without cash is to be forced upon us by hook or by crook. A new recommendation paper from the International Monetary Fund (IMF) contains tips on how banks can "inconspicuously" persuade consumers to do so. The reason for all the effort? Guess! Complete monitoring of payment transactions and more play money for the dubious financial transactions of banks.

The International Monetary Fund (IMF) has published detailed recommendations on how central banks can deprive citizens of cash or make them mad under the pretext of preserving the effectiveness of monetary policy . It is already at least the third study of this kind in the last two and a half years. Only a few months ago, a high-ranking manager of the European Central Bank (ECB) wrote a similar paper with an IMF advisor.

Christine Lagarde, the head of the IMF under which all these papers were created, will be sworn in as the new head of the European Central Bank (ECB) in a few months.

I am talking about the need for an effective monetary policy as a pretext, because the new push against cash is part of the strategy for the tricky removal of cash described in an IMF paper from 2017. It is worthwhile to briefly recapitulate this for classification:

In "The Macroeconomics of De-Cashing" the goal of cash disposal is assumed and the monetary policy consequences are only some of many. In it, the IMF recommends that governments that want to eliminate cash begin with seemingly harmless steps.

A example: they could begin with the abolition of large banknotes and ceilings for cash payments. It was preferable to send the private sector ahead with seemingly harmless changes. Direct government intervention would be more questioned given people's penchant for cash and people could put forward valid counterarguments.

For this reason, a targeted PR programme is also necessary to reduce mistrust regarding the removal of cash, in particular the suspicion that governments want to control all aspects of people's lives through the removal of cash, or the mistrust that it is a matter of forcing personal savings into the banking sector. The cash disposal process will make better progress if it is based on a cost-benefit analysis.

Note: The author does not consider the mistrust to have been missed. It includes the possibility of monitoring all people's financial transactions, explicitly among the benefits of cash disposal and also that savings are pushed into the banks, it lists among the benefits.

The cash disposal process will make better progress if it is based on a cost-benefit analysis. In the 88-page study "Enabling Deep Negative Rates to Fight Recessions: A Guide", published at the end of April, the cost-benefit analysis on which the study is based is a monetary policy one. The aim is to make it possible for central banks to push interest rates low into negative territory in order to stimulate the economy. It just happens to be the case that this presupposes eliminating cash or making it unattractive.

So far, the existence of cash has prevented banks from passing on low negative interest rates to their deposit customers. This is because they could withdraw their credit balances in cash to avoid negative interest and store them in the safe at zero interest.

It is consistently argued that the directly recognisable changes for people and legal adaptations should be kept as small as possible so that there is as little public discussion as possible. The proposed changes are quite dramatic. Wanting to stage something like this without going into public and parliaments is evidence of a deeply undemocratic attitude on the part of the IMF and the anti-cash crusaders.

The authors make no mention of the fact that in Europe, as in the USA and most other countries, banknotes issued by the central bank have the status of the (only) legal tender. There is only one vague indication of possible legal hurdles. In many respects their proposals contradict this legal requirement and even seek to eliminate it.

The aim is to ensure that, in the event of negative central bank interest rates, cash is consistently devalued against bank money. A euro of cash would therefore be worth less and less relative to a euro of credit at a bank. Those who pay in cash would (increasingly) have to pay more than those who pay by bank transfer or card.

In order for this to have the intended effects, it should be ensured that all major prizes are awarded in digital money. Then bank money is the real thing, the unit of account. If something is awarded 10 euros, then cash payers should pay more, not digital payers less. Old debt relationships are to be reinterpreted in such a way that repayment in digital money (bank money) repay the debt, while a surcharge can be demanded for cash payments.

But legal tender means that you can settle a monetary debt with it - unless something else has been agreed in advance on a voluntary basis. So if you owe someone 10 euros, you can pay this debt with a 10 euro note. A general surcharge on bank money is incompatible with the status of legal tender.

The clean approach brings the least change to the monetary system and does not require new laws.

Nevertheless, the IMF authors conclude that the proposed abolition of the legal tender is the least far-reaching policy measure to preserve the functioning of monetary policy . It brought with it the slightest change to the monetary system and demanded no new laws. That is a big joke. Neither is it a small change if citizens and merchants have to cope with a constantly - albeit constantly - changing exchange rate between cash and bank money, nor can the legal means of payment be abolished without a change in the law.

According to the IMF recommendation, the use of cash should be further reduced in order to improve the enforcement of digital money as a new unit of account. A tried and tested way of doing this could also be to issue digital central bank money accessible to all citizens . Such innovations should further reduce the role of cash, praises the IMF.

According to the IMF, what is still lacking is a central bank that will lead the way and thus clear the way for others to devalue cash against bank money. Three guesses which central bank it will be. As usual, of course, the Swedish Riksbank. It is already working intensively on the digital central bank money.

The technical implementation

This "clean approach", preferred by the IMF would be implemented through the interaction of central banks and commercial banks. The latter have balances in the form of central bank money with the central bank . These credit balances are a digital version of the legal means of payment (previously only available to banks). The banks use these balances to balance each other out in payment transactions. You can also withdraw cash at any time to satisfy customers cash needs. Conversely, they can deposit excess cash into their central bank account, both at a fixed rate of 1 to 1.

The IMF wants to break up this price ratio of 1 to 1. In order to prevent banks from withdrawing, storing and later re-paying their credit balances in cash in order to avoid negative interest on credit balances, you would be credited less when you re-pay than was deducted from your account balance when you withdrew. If, for example, the key ECB interest rate were to fall by 4 percent, the ECB would announce that after one year banks would receive four percent less for deposited cash than they have to pay today. After one quarter, it would be one percent less. Regardless of whether the bank leaves the money in the account or withdraws cash and stores it, it would cost them four percent per year in both cases.

This ongoing devaluation of cash should also take place in general business transactions. In their own interest, banks should pass on the costs of cash to their customers who use it. They would constantly make cash cheaper at ATMs or counters (counted in bank money). Conversely, those who deposit cash, especially merchants, would receive less and less bank credit for the deposited cash. Merchants would then either charge higher prices to cash payers or no longer accept cash.

When cash is no longer readily available or continuously devalued, withdrawing cash is no longer an option to escape negative interest rates, and banks can freely pass on negative interest rates to their deposit customers.

Cold expropriation

Treacherous is the shameful reference in the section on digital central bank money for anyone who can carry a positive but also a negative interest rate:

To give people the certainty that their digital central bank money will not be confiscated, it would be good to give an explicit guarantee that the interest rate on this digital money will never be more than x percentage points below, for example, the interest rate on short-term government bonds.

Here it is implicitly admitted that one can also expropriate people with sufficiently deep negative interest rates. At minus 5 percent, a rate that is often mentioned in these circles, you have lost almost a quarter of your credit after five years.

For bank deposits and cash, the IMF does not propose such a guarantee, indeed it does not even explicitly mention the problem. Ultimately, low negative interest rates on credit balances mean that depositors are partially expropriated in order to restructure banks that have gambled away. The IMF, of course, does not write this, but says that the profitability of the banks is important for the economy. Depositors are therefore expropriated for the benefit of the economy, pardon me, not expropriated, but confronted with appropriate incentives.

Discreet alternatives

If it is alleged that one could only preserve cash if the entire economy were to jump over the blade for it, then even the most stubborn cash lover must have insight. If cash makes it impossible for the central bank to do its charitable work to stabilize the economy in the future low-interest world, then it is a nefarious egoist who opposes this out of concern for his savings. That is the message of the IMF.

In order to convey this message, the authors pretend that interest rate policy with the detour via private commercial banks is not only an effective but also the only available means of monetary policy . The very question of whether the traditional interest rate policy is particularly effective can be debated in the light of the very modest results of the last ten years. In no case, however, is this policy without alternative, which can easily be deduced from the fact that it is only a few decades old.

In the chapter "Alternatives to negative interest rate policy", the authors only think of idleness or other strategies running through commercial banks that have already been tried out in recent years, such as bond purchases, or rather minor changes in interest rate policy, such as so-called GDP level targeting. What the authors forget to mention is the possibility of monetary policy to stabilize the economy directly without fattening the commercial banks at the same time.

For example, there is the proposal for helicopter money, which has already been discussed by Nobel Prize winner Milton Friedman and former Federal Reserve Chairman Ben Bernanke - the latter explicitly as an alternative when interest rate policy reaches the zero interest rate limit. Helicopter money means that the central bank does not give the newly created money to the banks, but distributes it directly to the citizens to stimulate demand. The zero interest limit is not an issue for this policy. It is also quite undisputedly effective in stabilizing the economy.

The main argument of the opponents is that then people would understand how the monetary system works, and then they would lose their trust in this system.

Bernanke wrote the following sentences:

The only counterargument I can think of is that the public might fear a future capitation tax at the same level as the money transfer, which would cause them to hold the extra money instead of spending it. But the government has no reason to do it, so the public has no reason to expect it.

More recently, Adair Turner, former Chief Financial Officer, Thomas Mayer, former Chief Economist of Deutsche Bank, Mark Blyth of Brown University and hedge fund manager Eric Lonergan, Daniel Stelter and (to a lesser extent) Willem Buiter, Chief Economist of Citigroup , have spoken out in favour of helicopter money. It is not necessary to find the proposal good, but not to mention it when presenting possible alternatives to zero interest rate policy is dubious. I have listed further alternatives to the interest-oriented monetary policy , which promotes commercial banks, and counterarguments to this here.

And here the bitcoin comes into play as an alternative

because Bitcoin isn't tied to any central bank or currency, a lot of money will flow into the market in the next few years. Anyone who thinks that the market cap of almost 850 billion dollars that has been reached so far is a lot probably does not know how much money is in the stock market, foreign exchange market or commodities market to compare. There are about 70 trillion dollars in the stock market, about 30 trillion dollars in the commodity market and more than 20 trillion dollars worldwide in foreign exchange trading. If only 5 % of all areas are transferred to the crypto currency market due to capital protection, it is already at over 5 trillion market capitalization and the Bitcoin price would already stay above $ 100,000 if we assume a distribution as before. Furthermore the bitcoin was deliberately created with a similarity to gold (limited, can be cut into small units, etc. ).

The price of gold would skyrocket with a significant negative interest rate, which also includes cash. Because gold is a prominent indicator of confidence in book currencies, this would be very unpleasant. It would therefore be necessary to ensure that the negative interest rate could somehow also be applied to gold , which is difficult, or to limit or prohibit the private holding of gold . Here a report by the Frankfurter of 10 July fits, according to which the Federal Government plans to lower the upper limit for gold purchases from 10,000 euros to 2000 euros without an identity check.

That's why I've been buying gold and bitcoin in every big market drop for about 5 years now and keep half of it for at least the next 5-10 years.

Thats it. If you have any questions, please feel free to ask me in the comments or personal chat. I thank you for your attention and would be happy about a like for my work.

DK-Investment Consulting