A few weeks ago, we told you how governments were going to declare war on cash. They would be forced to do this, we said, in an effort to stop depositors from hoarding their cash under mattresses as interest rates go negative (or further negative in Europe and Japan).
Now comes word that businesses are beginning to take defensive actions to avoid the negative rates being imposed by global central banks.
The world’s second-largest reinsurance company, Munich Re, is pulling its cash out of the European Central Bank (ECB). Reinsurance is the business of insuring insurance companies for unexpected claims. And just like regular insurers, they keep lots of cash in the bank for paying claims.
Germany’s Munich Re pulled its cash out of its overnight accounts with the ECB to avoid paying the ECB’s negative interest rates. This comes after the ECB lowered its interest rates to -0.4% from -0.3% last week. Of course this makes sense because Munich Re can’t absorb the huge costs of paying interest to the bank on the money it has in its accounts.
What did Munich Re do with its money?
The company decided to warehouse the paper money in a vault in Germany.
Munich Re says this is a test run to see how easy and cost effective it is to hoard paper cash and keep it out of the hands of the central bank. They expect the costs of warehousing and protecting the cash to be significantly cheaper than paying interest to the ECB for holding the cash.
Why is this important?
Negative rates discourage thrift by imposing what is effectively a tax on cash. This virtually forces individuals and companies to pull its cash out of the banking system. This result is a global bank run where the only people getting to keep their cash are those who pull it out first.
Here’s the bottom line…
The War on Cash is intensifying. Soon, governments will need to get more aggressive in their need to ban cash. They simply cannot allow companies, like Munich Re, to buck the system and avoid paying interest to central banks.
In the end, desperate economic policies beget desperate measures. Investors everywhere need to protect themselves from the wealth destroying tactics of out-of-control central banks and the politicians who promote such stupid ideas.