The Greek government made a stunning move on December 1st, declaring that selected Greek taxpayers were mandated to declare on their tax forms assets such as cash “under the mattress,” jewelry, and precious metals like gold and silver. Currently the law only applies to certain taxpayers (lawmakers, journalists, public servants, etc.), and includes a minimum asset level for required reporting (at least 15,000 euros in cash or at least 30,000 euros in jewels or precious metals). Many believe, however, that this is merely a first step towards requiring complete asset declaration by all taxpayers in all amounts. Is Bitcoin a potential weapon against required asset declaration? Will this new regulation bring more people into the Bitcoin ecosystem?
War on Cash
The Greek government’s recent declaration is only the latest move in what some are calling the “War on Cash.” With the effects of the 2008 crash still lingering, Central Banks throughout the world, but particularly in Europe, have been working overtime to stimulate their economies.
Of course, Central Banks always follow the same Keynesian model: stimulate more spending, more spending, and more spending. The key weapon they have is interest rates, which have been consistently lowered over the years to encourage people to borrow more, and thus spend more. However, in recent years interest rates have been effectively zero, and most economists assumed that this is the lowest they can go; negative interest rates would mean that individuals pay the bank to hold their money, so most people would just keep cash and other assets at home instead.
Central Banks are now testing that assumption: the European Central Bank, for example, has reduced its deposit rate for commercial banks to -0.2%, and many expect them to reduce it even further soon. These negative interest rates are no longer limited to commercial banks, either – they are cascading to retail accounts. Last month, the Alternative Bank Schweiz, a small Swiss bank, announced it will apply a negative interest rate to retail accounts starting January 1, 2016, becoming the first (but unlikely the last) to do so.
Negative interest rates for Joe Consumer will likely mean that many people will decide to keep more of their assets outside banks. It will also increase the use of physical cash. This has not led governments to re-think their policies regarding manipulating interest rates, of course. Instead they are declaring a War on Cash, which is an attempt to drive all commerce into the regulated, monitored economy. This War on Cash includes banning cash transactions above a certain threshold and making cash transactions illegal in certain industries.
The latest front in the War on Cash is the Greek government’s new regulations. Assets that are not kept in banks are more difficult to tax, and more difficult to include in a Cyprus-style “haircut.” Governments desire to track these assets as well, but mandatory asset declaration quickly leads to fears of asset confiscation. Traditionally, when citizens suspect government confiscation of funds, they park their savings in asset classes more difficult to seize: precious metals, jewelry, even the proverbial cash under the mattress. The thinking goes, “They might be able to transfer money out of my bank account easily, but they most likely won’t go door-to-door checking for assets in my basement or attic.” However, asset declaration makes this assumption more precarious. Those government agents will know just which doors to knock on (or knock over).
How does Bitcoin fit into this scenario? As a pseudonymous asset which, with proper steps taken, can be kept hidden from prying eyes, Bitcoin is an attractive store of value in an age of creeping government control of individuals’ assets.
Storing physical assets like gold or silver or jewelry or cash has its downsides; they are hard to transport, take up storage space, and in large quantities are easy to find in one’s home. Bitcoin, however, allows one to store vast quantities of value on a piece of paper or a hardware wallet in your pocket. Further, transferring value via Bitcoin is incredibly easy: if a possible confiscation is coming, funds can be moved instantly to a trusted person in another country.
Bitcoin as a weapon against government intrusion isn’t perfect, of course. Although officials can’t just confiscate bitcoins from a home safe, they can take a paper wallet from that safe. Even if a person memorizes her mnemonic seed and keeps no paper copies, governments have powerful means of coercion at their disposal if they want to use them. And purchasing Bitcoin through most exchanges requires bank credentials, thus leaving a paper trail for prying eyes. There are ways to reduce risk; for example, one could use multi-sig and have a trusted person outside the country hold one of the keys.
One trustworthy maxim is that if a government wants something, it will usually get it. If it wants people’s bitcoins, the government has many ways to obtain them. However, the more people use Bitcoin as a savings vehicle, the more prohibitive confiscation will be. The resources needed to seize one person’s bitcoins might be negligible for a modern State, but to seize them from millions of citizens…that’s another story.
One of Bitcoin’s mottos is “Be your own bank!” In an era when traditional banks don’t hold your money, but hold it in your name for the government, this truth about Bitcoin makes it one of the best weapons in the War on Cash.
What do you think? Is there a War on Cash? What are the best ways to resist government attempts to control your assets? Let us know in the comments below!
Images courtesy of pixabay, morgueFile