Source: munplanet.com

We have heard a lot of chatter about a potential negative interest rate policy, and while the general market consensus in the USA is still expecting to see at least two rate hikes by the Federal Reserve before the end of this year, the situation is completely different in Japan and in Europe. The Japanese central bank was the first central bank to openly discuss a potential negative interest rate in an attempt to boost the country’s economy again, but the grand scheme of things seems to be going much further than that.

About six months ago, some European economists started to make a case for a cashless society, referring to some Scandinavian countries where the majority of the payments was conducted through non-cash means. Thus, they argued, there was no need to keep on working with cash, as a cashless society seemed to be working just fine. Technically and theoretically, they are right. It is much easier to just swipe a card or just tap with a cell phone to make a payment, but the real issue at hand is that you’d have to have full confidence in the financial system.

And that’s exactly  where the first issues occur. The financial system in Europe isn’t as safe as one would expect it. After all, we’ve had the Greek banking crisis, a Spanish banking crisis, a Portuguese banking crisis, an Irish banking crisis, … in just the past 8 years, so why would any sane European citizen trust the banks when the entire system was on the verge of a breakdown in the past few years.

Source: voxeu.org

However, as the negative interest rate policy is becoming a serious option, a cashless society might happen faster and earlier than expected as the NIRP might collapse the banking system. In a recent inquiry, the Dutch banking group ING asked 13,000 of its clients (so that’s quite a representative group) what they would do if the interest rate on the savings and checking accounts would turn negative. This poll was conducted in Belgium and the Netherlands, which have the highest saving rates of Europe (the Belgian banking system for instance has approximately $300B in cash on savings accounts which is quite a substantial amount for a country with a GDP that is less than 50% higher than that).