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Cashless Society, Negative Interest Rates and Hyperinflation – Part 2

Imagine a country in which banks hold virtually no cash at all. A country where if you walk into a bank branch, the clerk will not be able to help you make a deposit into your account. A country where there’s a good chance that if you grabbed a wad of cash and walked into an electronics store or a major nightclub, they wouldn’t be able to assist you in buying a new computer or giving you a drink.

Welcome to Sweden, the land of virtual cashlessness! Although the Swedish Riksbank recently launched a full array of new and very colorful bills featuring celebrities such as famous children's book author Astrid Lindgren and film director Ingmar Bergman, cash usage in Sweden is in absolute free fall, down from SEK 100 billion in 2010 to SEK 70 billion in 2015. Several factors have combined to lead to this development.

  • For many years now, most Swedes above the age of 16 use a VISA, Master or Maestro debit card to settle payments, even for small sums below $10.
  • Sweden is - and has been for many years - at the forefront of both developing and adopting new IT technology and is one of the most mobile phone dense countries in the world, with upwards of 60% of the Swedish population owning a mobile phone as early as 1999. 
  • The Swedes' willingness to adopt new technology is evident from the proliferation of a transfer system called ‘SWISH’. The SWISH app enables any two parties holding a Swedish bank account and a Swedish phone number to transfer money to each other instantly, all with no fees. Even merchants use SWISH to accept payments. There are homeless people selling newspapers in Sweden that accept payment via SWISH. In Stockholm, these homeless sellers have even been accepting credit card payments since as early as 2013 using a smart phone extension known as ‘iZettle’, also invented in Stockholm.  
  • Over the last few years, more than 70% of all bank branches in Sweden have gone cashless, meaning that if you walk into a bank branch in Sweden, there’s about a 70% chance (or higher) that they would not accept any cash you are trying to deposit.
  • In Sweden, there are virtually no payments made by cheques any more as banks stopped issuing cheque books years ago.

Tech loving Swedes

Some of these facts might sound unbelievable and even absurd for someone not living in Sweden: No cash in the bank? Homeless people accepting credit card payments?

But y es, Swedes seem extremely willing to accept new cashless payment technologies, such as credit/debit cards, as well as payment apps, while forgoing old ones, such as cash and cheques. All with little or no suspicion towards these new electronic payment methods.

Other countries have tried the same. Singapore tried, or at least planned to try a new electronic cash system named SELT or ‘Singapore Electronic Legal Tender’. In an OECD report issued in 2002, the Board of Commissioners of Currency (BCCS) - which was the sole currency issuing agency preceding the merger with MAS in 2002 - outlined the envisioned structure of the SELT system where the goal was said to be a reduction of physical cash usage and its handling costs.

As can be seen in the 2002 OECD report, the SELT system was in a very early conceptual stage and only outlined the concept in very broad strokes. But its interesting to note that as early as 1998, BCCS held a strategic planning seminar in which it set out its ‘corporate vision’ for the introduction of SELT within 10 years.

The 2002 report further stated that the SELT system was to be put in place in order to effectivize the cash currency system. The SELT system never came to fruition, and as is apparent  from statistics displayed further down in this article, the amount of cash currency circulating in Singapore has increased immensely since 2002. As have the amount of cash ATM machines, where there were far less than 2000 units at that time. The OECD report also mentions that although cash transaction costs in Singapore are extremely low, the cost to the economy of these ATMs was approximately SGD 656 million in 1998 and was projected to exceed SGD 1 billion by 2006.

BCCS envisioning a system such as SELT 15 years ago shows that they were ahead of their time and that Singapore government institutions are some of the very early adopters in trying to implement new technologies as well as eager to make their government institutions more effective. This is in line with the Smart Nation Objectives that Singapore has outlined. In contrast to Sweden, the Singaporean approach has been to adopt new payment methods such as e.g. card payments, while still being extremely welcoming for older payment modes such as cash or even cheques. Singapore's very safe environment with extremely low violent crime rates makes it a nation that conveniently lends itself to cash payments.

However, as absurd as it might sound, the abolition of cash is slowly unfolding in many countries, with Sweden is probably at the forefront of this trend. Although a majority of stores in Sweden still accept payment in cash, there are an increasing number who don't. Swedish law doesn't require a merchant to accept payment in cash, which is a bit ludicrous considering that cash is still legal tender in Sweden. After all, legal tender normally means that whatever is legal tender should be good for the payment of all debts.

Now, if a merchant doesn't want to accept cash in the form of nationally issued notes, then so be it. But what is shocking is that, as was mentioned at the beginning of this article, about 70-80% of all Swedish bank branches have removed all cash handling. All within just a few years. No, it's not a typo. Walk in to a random Swedish bank branch and try to deposit or withdraw a larger sum of cash and up to 80% of the time you'll get rejected with a polite "sorry, but this branch doesn't handle any cash".

Such branches only provide services such as financial advising, housing loans, credit cards services etc. The real aims of this strategy aimed to get money out of your pocket and into the pockets of the banks. Bank staff are pushed by their management to sell house loans, credit lines,  speculative paper instruments, and more savings accounts. This trend has also been evident in the extreme case of Wells Fargo's recent banking scandal involving the concept of cross-selling accounts with the goal of every Wells Fargo customer holding a minimum of eight Wells Fargo  accounts. Why? Because, in the words of former Wells Fargo's Chairman John Stumpf : 'Eight is great!'.

All this means that if you open an account at a Swedish bank branch, you can only fund your account by either going to a branch that does handle cash, or by transferring money to the new account from an already existing account.

During the last 5-10 years in Sweden, M0, which is an aggregate measuring the amount of physical cash in an economy, has collapsed from over SEK 100 billion down to about SEK 70 billion.

m0 sweden
M0 Money Supply in Sweden

In Singapore, cash money has increased from around SGD 21 billion in 2010 to SGD 33 billion in 2015.

m0singapore
Cash money in Singapore

Furthermore, statistics from the World Bank shows that the number for Automated Teller cash Machines has increased from less than 48 per 100K citizens, to more than 59 per 100k citizens in 2014. And the trend seems to be continually increasing.

ATMs in Singapore
Increasing number for ATMs in Singapore

The above data means that there are now more than 3200 ATMs island wide in Singapore as compared to less than 2000 units in 2004.

Cashless Means Less Crime!

One argument for making an economy totally cashless is that it would cripple crime. Crime syndicates, burglars, drug dealers, petty thieves all rely on an anonymous paper cash system to sell their contraband. If we just eliminated cash paper bills, then drug dealing, robbery, burglary, even tax fraud would almost totally disappear. Right?

One of the most avid proponents of a total cash ban is a famous Swedish musician by the name of Björn Ulvaeus. Ulvaeus, is known as a member and founder of the super group ABBA (that ironically wrote the song "Money, money money"). A few years back, Ulvaeus's son got robbed several times and some of his expensive music equipment was stolen. Ulvaeus' rationalse behind banning cash is that if there was no cash at all, but only electronically traceable payment systems, burglars would not be able to sell the stolen items on the black market, and as such, the theft would have never occurred.

Although slightly confused, Ulvaeus is still onto something. In two opinion articles published in a major Swedish newspapers a few years ago, he mentions barter and its limitations.

However, history shows time and time again that humans have overcome the limitations of barter in numerous ingenious ways. Be it through using precious shells, stones or metals - such as gold and silver - or be it through local and informal credit systems, the challenges of barter have always been vanquished as long as the need and demand for such a system exists.

For instance, cheques issued by the army and used by British soldiers stationed in Hong Kong in the 1950s, started to circulate as a cash currency. The faith and credit in these cheques among local merchants was universal, so why bother with the inconvenience of cashing them in when you could let your supplier do that instead. Anthropologist Keith Hart tells the story of his brother stationed in Hong Kong in the 1950s. Keith's brother was more than a little surprised when he one day he found a cheque signed by him 6 months earlier laying on the counter of a local bar with more than 40 other small signatures on the back stemming from each merchant that had legitimized the validity of the cheque. A game of confidence. A spontaneously arisen form of cash.

In jails, alcohol, sticks of cigarettes and more recently ramen noodles, are being used as currency. These goods arise spontaneously as the universally most sought after and can thereby be used as currency or money to buy anything else. No government, army, police or bank was needed to give these goods the status of money. They emerged spontaneously in the market place just as gold and silver have done so many times throughout history.

Today's banking system is therefore showing itself for what it really is: A pyramid scheme where your money is used to speculate in questionable asset classes whose value is propped up only by the very investors (banks) that are buying into these asset classes with the help of money emanating from an endless pool of credit fueled by central banks' artificially low or even negative interest rates.

Negative Interest Rates and Cashless Society: A Precursor to Hyperinflation?

When the negative interest rates of central banks spread to the commercial banks, a lot of people will naturally want to withdraw their money. As long as cash is readily available, this is not an issue. At least not as long as not everyone decides to withdraw their money all at once. But if cash use is highly limited, as per the example of Sweden, withdrawing your money will be hard or impossible. The resulting cashless or 'cash strapped' society is effectively hindering a bank run to happen, as this in reality gives the banks a debt cancellation or at least a massive debt forgiveness, because remember, the balance on your account is the banks debt owed to you. If there's no cash, then how can the bank pay its debt to you?

More on this in Part 3 of this series....

Sources:

http://www.oecd.org/futures/35391062.pdf
http://www.mas.gov.sg/currency.aspx
Debt: The First 5000 Years - David Graeber
http://www.scb.se/
https://www.riksdagen.se/sv/dokument-lagar/dokument/yttrande/nu2y_GN05NU2y

Buy Silver Bullion in Singapore

Singapore offers a number of benefits when buying and storing silver. In Singapore, the majority of silver bullion bars and silver bullion coins from the world’s major mints and refineries are exempt from Goods and Services Tax (GST). There are also no taxes or duties on the import or export of silver.

Singapore is also one of the safest and most secure jurisdictions in the world. This has led to the development of an extensive range of secure vault storage services in the country. There are also no reporting requirements when buying and storing silver in Singapore.

While the gold market in Singapore often overshadows that of silver, its important to remember that Singapore hosts an active market for silver as well as for gold.

Singapore: Precious Metals Hub

Singapore's Government actively supports the growth and development of Singapore as a precious metals trading and storage hub, and this applies equally to buying and storing silver as to buying and storing gold. According to a recent Singapore bullion market survey conducted by the SBMA, more that 4200 tonnes of silver were traded in Singapore during 2015.

This active trading is partially due to the fact that there are no licensing requirements on the importation or exportation of silver to and from Singapore. The silver trading market in Singapore is also supported by the presence of a number of active bullion banks, trading houses, and retail bullion dealers.

Furthermore, Swiss headquartered Metalor operates its own precious metals refinery in Singapore which has processing capacity for both silver and gold, and there are a number of large wholesale precious metals storage facilities situated in Singapore, such as at Brinks and Le Freeport which store physical silver as well as gold.

BullionStar offers a wide range of investment grade Silver Bars and Silver Coins

One of the immediate attractions of buying silver bullion in Singapore is the exemption of silver bullion from Singapore's Goods and Services Tax (GST). This means that when you buy silver bars and silver coins from a bullion dealer Singapore, you pay no sales tax whatsoever.

The GST exemption was first introduced by the Singapore Government in October 2012, and applies to Investment Precious Metals (IPM) which are defined as qualifying gold, silver and platinum in the form of coins, bars, ingots and wafers.

Investment silver means silver bars and silver coins that have a silver purity of 99.9% or higher. Qualifying silver bars must be tradable on the international market, be fabricated by a refiner accredited to the London Bullion Market Association (LBMA) Good Delivery List for Silver, and generally, all qualifying bars are required to bear a recognizable hallmark of a refiner.

All silver bullion bars stocked by BullionStar qualify for this GST exemption, so when customers buy silver bullion bars at BullionStar, they can be assured that the prices listed for these silver bars will be free of GST.

Monster Box of Canadian Maple Leaf Silver Coins

For silver bullion coins to receive the GST exemption, they must be legal tender coins in their country of origin. Additionally, only silver bullion coins included on a specific list drawn up by Singapore’s Revenue Authority are currently GST exempt.

From the latest GST guide on exempted IPM, dated July 2017, the list of silver coins that are GST free spans 16 issues of silver coins from a combined 8 countries around the world.

These includes silver coins from the US Mint, Perth Mint, Royal Canadian Mint, Royal Mint, Austrian Mint, as well as silver coins issued by the Mexican national mint, the Chinese State, and a silver bullion coin issued on behalf of the Government of Armenia.

The current list of GST exempt Silver Coins is as follows:

From time to time, the Singapore revenue authority updates this list and adds new silver coins to the list of exemptions. Note that the above links are mostly to the popular 1 oz denomination, but the GST exemption applies to all weight denominations that are issued for each of the qualifying coin types.

Royal Canadian Mint 1 oz Silver Maple Leaf

All of the above silver coins are stocked by BullionStar in all available denominations, and are can be purchased either at BullionStar’s shop and showroom on New Bridge Road central Singapore, or via BullionStar’s online website. So when customers purchase any of the silver bullion coins on this list, they will receive these coins at prices that are free of GST.

Popular Silver Bullion Products

An interesting way to gauge the relative popularity of the investment silver bullion market in Singapore is by looking at BullionStar’s annual sales figures. Each year BullionStar transparently publishes its annual sales figures on its website, including in infographic format.

During financial year 2017, ending 30 June 2017, BullionStar generated full year sales revenues of SGD 186.2 million, with silver products accounting for just over a quarter of total sales (25.7%).

Silver bar sales represented 21% of total sales, with 1 kg silver bars being the most popular bar weight sold, followed by 100 oz silver bars. Silver coins represented just over 4.6% of total sales, and the most popular silver bullion coins bought by BullionStar customers were Canadian Silver Maple coins followed by Australian Silver Kangaroo coins.

Generally speaking, premiums on silver bullion coins will tend to be higher than premiums on silver bullion bars. Likewise, premiums on large silver coins and large silver bars will generally be lower than those on similar bars and coins of smaller denominations.

BullionStar 1 kg Silver Bullion Bars

BullionStar also offers the popular BullionStar branded 1 kg minted silver bar. These high-lustre polished 1 kg silver bars are exempt of GST and are fabricated by the world-famous Heraeus precious metals refinery in Germany. Heraeus is a LBMA accredited refinery.

BullionStar 1 kg Minted Silver Bars

Importantly, there is no spread between the buy price and the sell price on these BullionStar 1 kg silver bars when transacted in 100 units or more, and only a small spread if a quantity of less than 100 bars is bought or sold.

Saving in Grams of Silver

BullionStar’s Bullion Savings Program (BSP) in silver is a novel way to begin saving in silver. Denominated in grams, every gram of silver purchased by a BSP customer is fully backed by BullionStar’s stock inventory. Purchases start from as little as 1 gram of silver.

When a sufficient quantity of BSP grams of silver has been accumulated, customers can then convert these grams of silver to Heraeus 15 kg silver bars at no extra cost. The storage costs of silver in the BSP program are just 0.19% per annum.

Merlion Silver Rounds

BullionStar has recently issued a 1 oz Merlion Silver Round celebrating Singapore’s famous Merlion statue. The imagery on the 1 oz silver round also displays Singapore's national flower, the Orchid. This round silver bullion bar is minted by LBMA accredited refiner Republic Metals Corporation, and is GST exempt since it is a round silver bullion bar in .9999 silver minted by a LBMA accredited refiner.

The Silver Price in Singapore Dollars

During 2017, the silver price measured in Singapore Dollars has traded in a range between just over SGD 21.5 and SGD 26 per troy ounce, with higher prices seen in the first half of the year. Since August, the price has fluctuated in a narrow range between SGD 22 and SGD 23 mark. Overall, a troy ounce of silver in terms of Singapore Dollars is cheaper now than it has been for most of 2017, and now may be a suitable entry point for Singapore based investors buying silver for the first time, or for existing silver holders wishing to accumulate additional physical silver.

Year to Date chart for 1 Troy Ounce of Silver in Singapore Dollars

Silver Storage in Singapore

Singapore is one of the safest and most secure jurisdictions in the world for those who wish to store silver and other precious metals. Due to a strong rule or law and stable prosperous economy, there is virtually no serious crime in Singapore. Singapore’s legal system vigorously upholds property rights, and importantly, there are no reporting requirements on buying, storing or selling silver bullion or other precious metals.

In addition to the Goods and Services Tax (GST) exemption on investment precious metals mentioned above, there are no capital gains taxes on silver or other precious metals in Singapore, no dividend taxes, no inheritance taxes, in fact no taxes whatsoever. All of these factors help explain why Singapore has become well-known internationally as a storage hub for silver and gold, and why a number of secure vault storage providers, such as BullionStar, successfully operate in the Singapore jurisdiction.

BullionStar offers secure vault storage in Singapore for Silver and other Precious Metals

BullionStar's secure storage offering operates a highly security precious metals vault integrated into its downtown Singapore facility. All customer silver bullion bar and coin holdings in BullionStar's secure vault are fully allocated, and customers at all times have full legal title to their stored bullion. Storage charges for silver bars and silver coins with BullionStar are only 0.59% per annum.

All bullion is fully insured, and customer bars and coins are always handled under camera surveillance. In addition, BullionStar employs an extensive series of auditing approaches to continually confirm the existence of all bullion products. Storing silver bars and silver coins in Singapore is therefore an attractive proposition, and at the same time a safe and simple process to undertake.

For a comprehensive overview of the benefits of buying silver bars or silver coins as a form of investment or savings, please see BullionStar guide "Why Invest in Silver".

Infographic: Gold ETF Mechanics

Gold-backed Exchange Traded Funds (ETFs) have grown strongly in scale and popularity over the last decade and their combined gold holdings now surpass all but the largest central bank gold reserve holdings. However, its important to understand the mechanics of these gold-backed ETF investment vehicles and to appreciate what they can and can't provide to gold investors.

This infographic takes you on a tour of gold-backed ETFs and illustrates insights into how these products really work, including the following:

  • The contemporary gold holdings of the world's largest gold-backed ETF platforms
  • Why holders of gold ETFs are holders of units / shares, not gold holders
  • The characteristics and common objectives of gold-backed ETFs
  • How the world's largest gold ETFs support and perpetuate the opaque practices of the London Gold Market
  • The secretive vault network within which many large gold-backed ETFs allocate and store their gold in
  • How the amount of gold represented by an ETF unit erodes over time
  • The summary mechanics and infrastructure of many of these gold ETF vehicles

For more information about the mechanics of gold-backed ETFs, please also see BullionStar Gold University article Gold ETF Mechanics.

Gold ETF Mechanics Infographic

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Infographic: COMEX Gold Futures Market

This COMEX Gold Futures Market infographic guides you through the largest gold futures market in the world, COMEX.

Did you for example know that only 1 in 2500 contracts on COMEX goes to physical delivery whereas the other 2499 contracts are cash-settled? This corresponds to a delivery percentage of 0.04% of all gold contracts.

The US government claims to hold a fair bit of gold in reserves but how much is it really holding?

In this infographic you will learn more about the COMEX gold futures market considering

  • COMEX Trading Volumes
  • Fractionally Reserved Futures Trading
  • Cash-settlement of COMEX Gold Futures Contracts
  • Eligible and Registered Gold on COMEX
  • US Treasury Gold Reserves
  • Location of US Treasury Gold Reserves
  • Foreign Gold at the Federal Bank of New York
  • US Gold Mining

You can learn more about the US Gold Market at the BullionStar Gold University.

COMEX Gold Futures Market Infographic

Infographic on COMEX gold futures market, the world's largest gold futures market

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Infographic: London Gold Market

This London Gold Market infographic guides you through the secretive OTC wholesale gold market in London. The London Gold Market is the largest gold market in the world and the volumes traded are staggering.

The London Market serves as a price discovery market for the worldwide gold spot price and is home to the London Bullion Market Association (LBMA).

London is also a hub for gold storage with 6,500 tonnes of gold stored in gold vaults around London.

In this infographic you will learn about the importance of the London Gold Market considering

  • Trading Volumes
  • Fractionally Reserved Paper Gold Trading
  • Price Discovery for the Gold Price
  • Gold Vaults
  • Secrecy in the London Gold Market

You can learn more about the London Gold Market at the BullionStar Gold University

London Gold Market Infographic

Infographic London Gold Market

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