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Japan and a Proposal for a “War on Cash”

Originally published by Bloomberg on August 4, 2018 Read the original article.

Elliott Wave International has periodically provided updates to subscribers on a “war on cash” by financial authorities around the globe.

One example is from the July 2013 Elliott Wave Theorist:

Authorities don’t want you to have cash, because it means you’re not propping up debt. Mises Daily has been reporting on a silent “war on cash” in some parts of Europe. Sweden, Norway and France are restricting the use of cash. They’re demanding that people use credit cards, because they don’t want them to pull cash out of banks. That doesn’t happen in hyperinflationary times; it happens when bankers are worried about deflation.

Another example is from the February 2017 Elliott Wave Financial Forecast:

Many cities have become literally cashless. In London, for instance, buses as well as many shops and cafes refuse to handle paper currency and coins. “Cities big and small are at the forefront of a global drive to go digital,” says The Guardian [UK]. In outlying economies, the anti-cash actions are even more pronounced. India, for instance, declared a “war on cash” in November. In an effort to flush out the paper, the government replaced 500- and 1000-rupee notes.

If there’s one nation that’s been worried about deflation, it’s Japan. The “Land of the Rising Sun” has been battling deflation since the early 1990s, and despite massive stimulus efforts during Prime Minister Abe’s administration, a deflationary mindset among Japan’s population persists.

An expression of that mindset is cash hoarding among the Japanese. What should Japan’s financial authorities do to get people to spend more, thereby spurring a rise in the inflation rate?

Well, one writer proposes that cash be replaced by a digital currency.

Details are in this Aug. 4 Bloomberg article excerpt:

Japan is a highly cash-dependent society. The cashless payment rate is only 20 percent. As long as people’s preference to hold physical yen isn’t forcibly changed, it may not be possible for the BOJ to continue its policy of negative interest rates indefinitely, given what it’s doing to the banks. Last week’s tweaks in monetary policy showed that fatigue is setting in. If pessimism gains ground, Prime Minister Shinzo Abe’s anti-deflation campaign will be over.

To rescue it, Abe must go beyond private-sector initiatives such as the soon-to-be-launched, QR-code-based “PayPay” smartphone payment service, a joint venture of SoftBank Group Corp. and Yahoo Japan Corp. What’s required is a public-sector push to replace all physical cash with a national digital currency. Sweden may stop using cash by 2023. There’s no reason why technologically savvy Japan can’t get there even sooner.

A state-backed digital currency would make it easier for the BOJ and the finance ministry to run “helicopter money” experiments. The BOJ would create new electronic money and give it to the government against a perpetual bond sold by the finance ministry to the monetary authority.  The ministry would then credit the electronic money to people’s bank accounts with the proviso that every month that the gift is saved — and not spent — its value will go down by, say, one-twelfth of 1 percent.

You can read the entire article by following this link:

https://www.bloomberg.com/view/articles/2018-08-05/how-to-end-japan-s-deflation-abolish-cash

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