IMF announces plan for stealing money from bank accounts

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They’re coming for you next: The International Monetary Fund today announced a proposed plan that would allow banks to charge negative interest on any deposited funds, a plan that would essentially allow banks, and governments, to steal money from their customers.

The plan also involves making cash a second-class method of payment, because it is impossible for them to charge negative interest on cash. When banks in Europe have charged negative interest, they have found they have instead created a run on their banks as customers rush to pull their money out.

One option to break through the zero lower bound would be to phase out cash. But that is not straightforward. Cash continues to play a significant role in payments in many countries. To get around this problem, in a recent IMF staff study and previous research, we examine a proposal for central banks to make cash as costly as bank deposits with negative interest rates, thereby making deeply negative interest rates feasible while preserving the role of cash.

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.

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. [emphasis mine]

I have highlighted the entire last paragraph because it contains the heart of the matter. You deposit $100, but they only give you $97 at the end of the year, keeping the $3 for their own benefit.

Buried deep in the article is this minor point:

Still, implementing such a system is not without challenges. It would require important modifications of the financial and legal system. In particular, fundamental questions pertaining to monetary law would have to be addressed and consistency with the IMF’s legal framework would need to be ensured. Also, it would require an enormous communication effort.

To put this in plain language, charging negative interest in most western nations would be considered outright theft. To do it they need to get the laws changed, while also running an intense propaganda campaign to convince depositors that having their money stolen is a good thing.

Sadly, I think this might happen. We live in dark times, with many people enamored by foolish ideas.



  • Col Beausabre

    Two comments

    1) Sweden (of course) has already announced they’re abolishing cash, so they are halfway there.

    2) By having a cashless society someone – feds, criminals, &deity knows who) will be able to monitor every transaction you make (“Your insurance is cancelled Mr smoker as we feel that based upon your purchases you are smoking too much…eating too much red meat….etc, etc)

  • I read the post at the IMF site. It appears the authors are floating an academic exercise. The thesis seems to be that central banks generally lower interest rates to stimulate economic growth (Economics 101), but during the last decade of 0% interest rates, there’s no room to practice this. The author’s recognize that no physical quantity (like cash) can be less than zero. As such, they propose making money a non-physical entity.

    The proposal does not address the fact that money in and of itself has no value; the value is in the resources it represents, and those resources are very real and very much non-negative. And there’s the rub. To implement such an idea, you’d have to convince people that what their money represents (their work) has no value in the physical world. That is prima facia nonsensical, and creates the same cognitive dissonance that Progressive policies engender: what they are saying is obviously disconnected from what actually is. Even if people aren’t able to articulate that feeling, they know it exists.

  • m d mill

    European central banks already have negative interest rates, but perhaps those cannot currently be applied to old accounts retroactively? If the US can avoid this particular inanity (and other neo-socialist and neo-fascist dogma), and defend “King” dollar, it will continue to be the envy of the world (whether it deserves it or not).

  • Edward

    Robert wrote: “When banks in Europe have charged negative interest, they have found they have instead created a run on their banks as customers rush to pull their money out.

    Apparently the European banks don’t understand the basics of economics, human behavior — especially that which is driven by their finances. If you make it costly to use your service, then fewer people will want to use your service.

    Robert wrote: “The plan also involves making cash a second-class method of payment

    Now the IMF does not understand the basics of economics. In the Soviet Union, people would line up in order to get whatever was selling at the other end of the line so that they could barter it for something that they wanted.

    If keeping my assets in the bank will cost me 3%, then I am likely to keep my assets in something barter-able, such as canned vegetables. On the other hand, we all will likely finally be prepared for the disaster(s) that the government has been advising we prepare for, all these years.

    Blair Ivey wrote: “The proposal does not address the fact that money in and of itself has no value; the value is in the resources it represents

    I read Niall Ferguson’s book The Ascent of Money, and his description of an early IOU from a farmer for five bushels of barley at harvest time reminded me of money. If the IOU can be redeemed by anyone, then the blacksmith(?) who first received it can pass it on to someone else for another good or service, and that someone else can redeem it from the farmer.

    Money works similarly, as in ‘I will give you this dollar (IOU) for your service today, but you may redeem it with someone else for his goods or services rather than mine.’ This is the value of the otherwise valueless dollar bill (since it is already printed upon, it is not even as good for making a shopping list as a blank piece of paper).

    From the article: “Many central banks reduced policy interest rates to zero during the global financial crisis to boost growth.

    As we saw during this past financial crisis, central banks and their policies do not have as much effect on economies as had been thought. If they did, then the U.S. economy would have been BOOMING through Obama’s beyond beyond-panic policies and Great Recession. It was once thought that taking Fed interest rates to 1% was to panic, and it had only been done once before, before Obama. Going below 1% was to go beyond panic, because then you had nowhere to take interest rates and virtually no ability left to affect the economy. To start printing trillions of dollars (taking us from a M1 of around $850 billion to more than $4 trillion), as the Fed did, was to go beyond beyond-panic.

    Yet growth did not get boosted as expected.

    Thus central banks do not have as much affect on economies as they think they do.

    From the article: “Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive. This would jolt lending, boost demand, and stimulate the economy.

    As Robert noted, the result will start with a run on the banks. This tends to be hard on economies, not easy on them (otherwise they would not have been a problem but a good thing during the Great Depression). Without money in the banks for business to borrow, growth and the predicted increase in production will become difficult. Thus the boost in demand may stimulate inflation rather than the economy.

    So first Trump applies tariffs, and now the IMF wants to implement bad monetary policy. It is beginning to look like the situation that set up the devastating Great Depression added with the failed policies that didn’t recover us from Obama’s Great Recession.

  • wayne

    “interest rates reflect the ratio of the value assigned to current consumption relative to the value assigned to future consumption. That is, money isn’t just some commodity that can solve our problems if we just create more of it.

    *Money serves a key function of coordinating output with demand across time.*

    So, the more you interfere with interest rates, the more you create a misalignment between demand and supply across time, and the greater will be the adjustment to realign output with demand to return the economy to sustainable economic growth with rising standards of living (see here and here). Negative rates will only ensure an ever greater misalignment between output and demand.”

    As long as there is physical cash, people will hold cash in times of uncertainty. It is a wise alternative when all other options seem unproductive or irrational — and keeping cash in a bank at a time of negative rates is, all things being equal, irrational. Central banks, not surprisingly, would therefore like to take away the ability to hold cash outside the banking system. Worst of all, people who hold cash outside the system might be saving it instead of spending it. Naturally, from the Keynesian perspective, this must be stopped.”

    “in reality, interest rates coordinate production and consumption decisions over time. They do a lot more than simply regulate how much people spend in the present. In particular, certain sectors are much more sensitive to interest rates than others. For example, if interest rates fall, it’s not merely that consumers and businesses spend more, but that they spend more on particular items such as houses, cars, and factories. When interest rates fall, the share price of General Motors might rise, but not General Mills, because breakfast cereal is not a durable good.”

    Austrian Business Cycle Theory explained
    Tom Woods 2010

  • Bill

    Thank you Blair Ivey for putting into words the cognitive dissonance that I felt when reading this story. By my non-economic analysis it appears the enforced reduction in value only happens when money is stored in a bank or when converted between the two types of currency.

    While physical money remains available, people just won’t convert between the two, maintaining assets in the physical. This will set up a black market for physical money, greater interest in assets like gold, and the largely unregulated digital currencies.

    All currency is just a social contract between people to agree that the token/Dollar/Euro/Won/etc., being exchanged has some value. The token being used will just change form.

    What is this world coming to?

  • Gary

    Governments already steal by deliberately inflating the money supply.

  • wodun

    Who needs a bank?

    Banks were for keeping money safe from theft, lending, and allow ease of transfer. There are alternatives to all of these now. In return for keeping people’s money safe, banks use that money for lending, investing, and overhead. They used to pay interest on savings accounts because they knew they were making a profit greater than the interest paid out.

    Now, they just pull in profits from the traditional businesses they engage in plus charge poor people fees if they don’t meet minimum levels of deposits. They make money hand over fist while providing no return for their customers other than the convenience of a debit or credit card.

    These are the same banks we bailed out with over a trillion dollars. The same banks that got trillions more in quantitative easing. They should have been thankful, instead they stabbed their customers in the back.

  • wayne

    One key factoid on “money”—our government determines which kind of “money” is acceptable for tax obligations. (Ya can’t pay your taxes with bitcoin.)

    The Federal Reserve has been paying banks 1/4 of a percent interest on required-reserves.

    Nassim Taleb:
    The World is More Fragile Today Than in 2007

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