What’s happening to money in this brave new chapter following the Cerveza Sickness? Things are moving very fast, and there are quite a few themes to keep track of. First off, authorities now have yet another excuse to ban paper currency, because it supposedly helps spread the disease. That might be true, but it’s likely a secondary reason behind the prospective banning of cash. Governments have been waiting to pounce on any opportunity to digitalize all transactions for quite some time. The control at hand with having all economic transmissions take place digitally is too much to pass up for your average authoritarian. Why? Because cash is anonymous, physical but without a paper trail. If you are a persona non grata, a government can halt your credit cards and put a hold on your bank account, but they cannot halt someone’s cash expenditures. 

In a digital system, you can punish your enemies and censor people very effectively, and that’s also true on much higher levels, not just the consumer level. For example, you can kick non-compliant players out of the SWIFT system, you can un-bank wrong-thinkers if they behave in a manner that is politically incorrect, but you can’t ‘un-cash’ someone. You can also halt ATM withdrawals during a bank-run, you can set a negative interest rate to force people to spend their digital money from their accounts, but this doesn’t apply to cash-holders. Cash is not subject to the same manipulations as digital currency. It’s the last bastion of economic sovereignty that common people have. It’s not subject to the tyrannical policies the way digital channels are, and that’s precisely why most authorities hate cash and try so hard to ban it.

Speaking of tyrannical policies: we’re now witnessing umpteen trillions being printed to ‘save’ the economy — what’s going to happen to prices moving forwards? There has been some talk of the threat of inflation. Inflation is certainly on the horizon as it pertains to consumer goods, but it’s unlikely that we’re going straight into hyper-inflation any time soon. How so? The coming surge in defaults and bankruptcies are very much deflationary events. When you don’t pay your mortgage and you default, your loan is extinguished. When the bank reclaims your home, that home will be sold, along with many other homes hitting the market at the same time in your neighborhood, which further contributes to price declines. As the value of the banks holdings decreases, the amount of money that the bank can lend out decreases. Fewer loans means less money chasing goods and services — deflationary. 

To compound this further, as we head deeper into recession and people lose their jobs, they are scared to waste money. They might even detect and appreciate that prices decline, all of which are reasons to save their money; save cash specifically. This slows down the velocity of money (the speed at which money changes hands), which further contributes to deflation. When I stop spending money on Uber rides, the Uber driver has less money to spend, and so on. On aggregate, it’s quite possible that in the short term, we see a decrease or plateauing of price levels. This might sound perverse considering the trillions that are printed, but that is feasible — at least in the short to mid-term.

As the real economy continues to decline, central banks will become more desperate, and they will try to stimulate or ‘kick start the economy’ with ever more aggressive means. Of course, this makes about as much sense as throwing around confetti to combat a hangover. The reasoning is, if they can just generate inflation, it’ll cause people to spend their money more quickly, and spending money of course causes economic activity and businesses to operate. If you stop to think about it, it’s an incredibly Machiavellian and manipulative construct, but this is one of the pillars the Keynesian economics rests upon, and that’s the philosophy that the world