There are many risks associated with investing. I didn’t think worrying about the cash in my current account would be one of them.
Since starting at Southbank Investment Research, I have had my eyes opened to the War on Cash. My first thought was “that’s a catchy title”, but I didn’t think any more of it.
Over the last year or so, I have had my eyes opened.
The War on Cash isn’t a theory. It’s already a reality. And only going to get worse.
Take for example our own taxman. He’s clearly not content with laying a claim on your children’s inheritance. He doesn’t even seem to be keen on asking for permission to access your bank accounts.
In July 2018, HMRC quietly published “Amending HMRC’s Civil Information Powers”.
In this document, the case is made that when investigating tax evasion, HMRC should be allowed to request information on people’s bank accounts from third parties. Without requesting permission from the account holder themselves.
It seemed so unbelievable that I wasn’t sure if I misunderstood what I was reading. But it turns out that this really is the truth of the matter.
James Daley, consumer rights campaigner and managing director of fairerfinance.com, had this to say:
The system we have got contains essential protections for taxpayers’ privacy and rights.
The idea that HMRC can request information from people’s bank, from state agents and other third parties without notifying the individual is shocking.
They are bypassing checks and balances that are there to protect people.
Of course we want to crack down on people who aren’t paying their taxes but there has to be a balance between that and breaching privacy.
This can’t be a lazy shortcut for the taxman.
As boring as official government releases are, I felt I had to examine the official publication. It made for some disturbing reading (emphasis mine):
- Obtaining approval from the tribunal and its associated processes (please see paragraph 2.5 above) can add a great deal of time to the information gathering process, and ultimately prolongs the course of a domestic enquiry or the time taken to exchange information internationally.
- Under this option, the process for issuing third party notices would be aligned with that for taxpayer notices. This change would see the removal of the requirement to seek approval from the tribunal or the taxpayer before a third party notice could be issued. An authorised HMRC officer would still have to authorise the issue of a third party notice, and the taxpayer would be given a summary of why the information or documents are being sought.
- As now HMRC would also be able to approach the tribunal to waive the requirement to notify the taxpayer that the third party notice had been issued, where they thought this notification would prejudice the assessment or collection of tax.
Some of the language used here is downright cheeky: “can add a great deal of time to the information gathering process”. Clearly following the laws put in place to protect taxpayers is too much of a drag. It makes their “investigations” too difficult.
Poor HMRC, eh?
Unfortunately the War on Cash isn’t exclusive to our shores. So doing a runner, or banking overseas, might not be an effective option if you want to preserve your financial privacy.
But why would you want to anyway? Because of what the War on Cash is really all about: taking more of your money away from you.
They don’t get more global than the International Monetary Fund (IMF). And the IMF clearly has your cash on its mind too.
Mere months ago, the IMF blog produced a theory on how to make negative interest rates work. That’s when money left in your bank account or wallet loses value over time. Not just through inflation, but the nominal number literally ticks down over time.
Here’s how the IMF’s proposes going about it: first it devised the idea of dividing money supply into two – cash and “e-money”.
E-money would only be used electronically and would pay a negative interest rate. Cash could still be used, but it has an exchange rate against E-money.
And as you’ve probably guessed by now, the exchange rate would make cash itself less valuable.
From the IMF:
To illustrate, suppose your bank announced a negative 3 percent interest rate on your bank deposit of 100 dollars today. Suppose also that the central bank announced that cash-dollars would now become a separate currency that would depreciate against e-dollars by 3 percent per year.
The conversion rate of cash-dollars into e-dollars would hence change from 1 to 0.97 over the year. After a year, there would be 97 e-dollars left in your bank account. If you instead took out 100 cash-dollars today and kept it safe at home for a year, exchanging it into e-money after that year would also yield 97 e-dollars.
Deposit $100 cash and receive $97 e-dollars. Cash would become less valuable and more costly to use (emphasis mine):
The proposal is for a central bank to divide the monetary base into two separate local currencies—cash and electronic money (e-money). E-money would be issued only electronically and would pay the policy rate of interest, and cash would have an exchange rate—the conversion rate—against e-money. This conversion rate is key to the proposal. When setting a negative interest rate on e-money, the central bank would let the conversion rate of cash in terms of e-money depreciate at the same rate as the negative interest rate on e-money. The value of cash would thereby fall in terms of e-money.
These are still just proposals. But everywhere you turn, there are huge institutions making plans to devalue cash, invade your personal accounts, and change the laws that protect you.
You should be worried about this. Or at the very least aware of what’s happening.
But more importantly, they’re working on what you need to do to combat what’s coming.
Tim Price is another one of my colleagues who is worried about all of this. He wrote the book on The War on Cash, literally.
Tim’s never been a fan of an overly intrusive state. And he likes to write about all the latest developments. But, interestingly, his investment philosophy disregards any such “macro” factors.
Instead, he focuses on a single element: the value of investments relative to their price. The difference between the two is the key.
Tim is a value investor through and through. He believes that the single most important element of an investment is the price you pay. If you get that right, the rest will take care of itself over time. Regardless of what invasive institutions try and pull.
That’s an interesting position to take. Especially for someone so interested in what’s going on in the world. But the proof is in the pudding.
Until next time,
Connor Coombe-Whitlock
Southbank Investment Research
Category: Market updates