Tag Archives: IMF

IMF announces plan for stealing money from bank accounts

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.

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Delusional banking

Time to consider holding more of your money in cash: The International Monetary Fund said on Sunday that it now supports the idea of imposing negative interest rates on depositor money at some central banks.

In other words, steal the money, placed originally in the banks for safety from theft.

The following quote from the article, however, reveals how truly hopeless the situation really is:

Critics argue that the move to negative rates, especially in Japan where the central bank has failed to ignite growth or shift inflation upwards, are a sign of desperation. What is needed they say is additional government spending instead of more loose monetary policy. In addition, they charge that the move may damage the economy by inflating financial market asset bubbles and squeezing bank profit margins. [emphasis mine]

The idea that more government spending will solve the problem of too much government spending, which is why these central banks are in debt and need to steal the money of the depositors in order to become solvent again, is absurd. That the world’s economic experts can see no other solution, like maybe getting government spending under control so that reasonable taxes can pay the bills, tells us that no reasonable solution will be tried, and that eventually everything is going to crash badly.

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