Negative Interest Rates are causing bankers to fear, among other things, currency wars and the widespread use of virtual currencies. Indeed, it is amazing how things are acting together to propel Bitcoin’s inexorable march to become one of the main currencies of the world, if not the world reserve currency for fiat currencies. New technologies, the Internet of Things, and global economic trends seem to be collaborating towards this end. Or perhaps, the world is going crazy. Take for example the recent moves by some of the world’s major central banks to impose negative interest rates.
Also read: Central Banks’ Failed Policies are Strengthening Bitcoin
Negative Interest Rates Boost Bitcoin
Until a few decades ago, negative interest rates were only a curiosity for some economists. Now negative interest rates are becoming widespread, sending ripples of fear throughout the banking industry.
Specifically, Hervé Hannoun’s, Deputy General Manager, Bank for International Settlements, explained:
Negative interest rates could over time encourage the use of alternative virtual currencies, undermining the foundations of the financial system as we know it today.
It seems that central banks resort to negative interest rates to resuscitate economies when all the other options have been exhausted. As Bloomberg put it, “Negative interest rates are a sign of desperation, a signal that traditional policy options have proved ineffective and new limits need to be explored.”
According to Richard Werner, a professor of economics and the creator of quantitative easing:
The policy of negative interest rates is thus consistent with the agenda to drive small banks out of business and consolidate banking sectors in industrialized countries, increasing concentration and control in the banking sector.
The adoption of negative interest rates is gathering steam. In January, Japan’s Central Bank announced that it was for the first time setting negative interest rates, at minus 0.1 percent.
The European Central Bank, along with several major central banks in Europe, including the Danish National Bank (DNB), the Swedish Riksbank, and the Swiss National Bank (SNB) have also adopted interest rates below zero, for the purposes of encouraging more lending, boosting exports, stabilizing inflation expectations, and reducing the risk of deflation, according to the World Bank’s Global Economic Prospect.
Now, the U.S. Federal Reserve is the big question. Specifically, will the Fed follow the path of its European and Japanese counterparts? This week Janet Yellen, Fed Chair, touched upon this issue in front of Congress, stating that the Fed is studying the countries that have adopted negative interest rates while conceding that this is indeed an option to consider.
“We wouldn’t take those off the table, but we have work to do to judge whether they would be workable here,” Yellen told CNBC.
Negative Interest Rates & Bitcoin
In parallel, there is also a trend towards a cashless society, in which consumers lacking hard currencies pay with electronic fund transfers, debit cards, credit cards, or shop online. For example, Swedish central bank is already working towards eliminating cash while lowering interest rates below zero. And, France, Italy, and Spain are banning cash transactions above a certain amount of Euros.
These moves bring a crucial point. As explained in the article titled “A Cashless Society is Economic Apartheid (Without Bitcoin),” negative interest rate coupled with digital fiat money equals wealth confiscation and easy manipulation by central banks.
Negative interest rates mean that you must regularly pay the bank for keeping your money. But, why should anybody pay a bank for keeping their money? The shortest answer is security.
The illusion that your money is safer in a bank persists. However, this is just an illusion. Bank systems are obsolete and prone to frequent malfunctions that put your money at risk. For example, the UK Parliament’s Treasury Committee had to recently press banks to invest in IT infrastructure to prevent failures.
In fact, “Britain’s retail banks have been hit by a number of technology failures in recent years, causing inconvenience to hundreds of thousands of customers and prompting lawmakers to call for more investment in financial technology,” reported Reuters.
Also, because banks are trusted organizations, they are prone to fraud. In fact, depending on “trusted” authorities simply increases the risk of fraud. For example, managers and bank tellers who are trusted with instantaneous access to clients’ personal data and cash are a major concern. Specifically, prosecutors, government officials, and security experts advise clients to worry more about the “rogue teller” behind the window than about sophisticated hackers, according to the New York Times.
Due to the inherent features of Bitcoin and its blockchain, converting your money to bitcoins would provide a higher degree of security than is provided by banks. In the trustless and decentralized Bitcoin paradigm, bitcoins are protected by your private key. Bitcoin transactions are encrypted using the SHA-256 algorithm.
About every ten minutes, miners capture pending transactions and upon confirming their correctness, they record the transaction data into a block. Next, miners append this block to the blockchain. The blockchain is a permissionless (i.e., anyone can participate), distributed database. Indeed, it is a digital ledger that continuously records and stores all the Bitcoin transactions that have ever occurred since the first block was created (the genesis block). Without a central authority, miners are incentivized by a reward in bitcoins to ensure the legitimacy of each transaction.
Finally, let’s not forget that banks can go bankrupt (see the list of bank failures from 2008 here). Or banks can just arbitrarily freeze your bank account. In fact, people in Argentina, Cyprus, and Greece are still fearful about depositing their money in banks. History has proven those people right.
So, if security is the main reason for paying a bank to hold their money, the public should consider taking matters into their own hands, securing their wealth with Bitcoin’s cryptographic protection, instead of corruptible and unreliable middlemen.
What are your thoughts on the security of money deposited in banks and other financial institutions? Let us know in the comments below!
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