The Advantages of Cash: A Prudent Choice for Economic Transactions

In the contemporary landscape of payment methods, it is essential to re-evaluate the significance of cash transactions over credit card usage. While plastic money is very handy, there is a strong argument for the adoption of cash as a preferred mode of payment, for it fosters a seamless circulation of money within the local economy, unlike credit cards which incur transaction charges. Let us look at how cash has a role in preserving the economic vitality of our communities.

When a customer spends €50 in cash at a shop, the cycle of economic activity commences. The retailer can then utilise that same €50 to purchase goods from another shopkeeper, who, in turn, can pay a staff member or use it for other expenditures. This continuous circulation of cash fuels economic growth and ensures that every euro contributes to the overall financial well-being of the community.

On the contrary, when a credit card is used to make the same €50 purchase, the retailer is burdened with a 3% transaction charge. Consequently, the initial €50 worth of goods now translates to only €48.50 available for the retailer's subsequent expenditures. This reduction in purchasing power inhibits the efficient flow of money within the local economy, potentially leading to a stagnation of economic growth.

Furthermore, the ripple effect of credit card charges does not end there. If the retailer, now equipped with €48.50, proceeds to use their credit card for another transaction of the same amount, another 3% levy will apply, further reducing the available funds. This cycle continues until the entire €50 is gradually depleted by credit card charges. Such a scenario does not befall cash transactions, as they remain unaffected by transaction fees.

In light of the growing inclination towards a cashless society, it is important that we acknowledge the potential ramifications of excessive credit card usage. While credit cards offer convenience and ease of use, we must be cautious not to overlook the adverse impact of transaction charges on businesses and the local economy.

In conclusion, advocating for cash transactions is not merely a matter of personal preference but an economically sound decision. By embracing cash, we support a sustainable economic ecosystem where money flows freely, empowering businesses to thrive and stimulating growth within our communities. As we navigate the inevitable shift towards a cashless society, let us remain mindful of the benefits of cash and consider it a prudent choice for the betterment of our local economies.

Reluctance of Irish Banks to Pass on Interest Rate Increases to Savers

The European Central Bank (ECB) has been steadily raising interest rates in an effort to combat inflation. This has led to higher interest rates for borrowers, but Irish banks have been reluctant to pass on these increases to savers.

Data from Trading Economics

As a result, savers in Ireland are currently earning some of the lowest interest rates in the eurozone. The average interest rate on a savings account in Ireland is just 0.05%, while the average interest rate on a mortgage is 3.5%.

There are a number of reasons why Irish banks are reluctant to pass on interest rate increases to savers. 

• One reason is that they are still recovering from the financial crisis of 2008. The crisis left Irish banks with a large amount of bad debt, which has made them more cautious about lending money.
• Another reason is that Irish banks are facing increased competition from non-bank lenders, such as credit unions and peer-to-peer lending platforms. These lenders are able to offer higher interest rates to savers because they do not have the same overhead costs as banks.

As a result of the reluctance of Irish banks to pass on interest rate increases, savers in Ireland are being squeezed. They are earning less interest on their savings, while the cost of borrowing is rising. This is likely to have a negative impact on the economy, as it will discourage people from saving and investing.

Comparison with Other Eurozone Countries

The reluctance of Irish banks to pass on interest rate increases to savers is not unique to Ireland. Banks in other eurozone countries have also been slow to do so. However, the situation in Ireland is particularly bad.

According to a recent survey by the European Savings Bank Group, the average interest rate on a savings account in the eurozone is 0.3%. However, the average interest rate on a savings account in Ireland is just 0.05%. This means that savers in Ireland are earning almost two-thirds less interest than savers in other eurozone countries.

The reluctance of Irish banks to pass on interest rate increases to savers is also reflected in the difference between the interest rates available to borrowers and savers. In Ireland, the average interest rate on a mortgage is 3.5%, while the average interest rate on a savings account is just 0.05%. This means that borrowers are paying almost seven times more interest than savers are earning.

The situation in Ireland is in stark contrast to the situation in other eurozone countries. In Germany, for example, the average interest rate on a mortgage is 2.5%, while the average interest rate on a savings account is 0.5%. This means that borrowers in Germany are paying just over four times more interest than savers are earning.

The difference between the interest rates available to borrowers and savers in Ireland is likely to have a negative impact on the economy. It will discourage people from saving and investing, and it will make it more difficult for people to buy a home.

Conclusion

The reluctance of Irish banks to pass on interest rate increases to savers is a serious problem. It is unfair to savers, and it is likely to have a negative impact on the economy. The government needs to take action to address this problem, and it should do so by increasing competition in the banking sector and by providing incentives for banks to pass on interest rate increases to savers.

How do banks actually 'create' credit?

To illustrate how €1,000 of reserves can create €9,000 of deposits, we'll assume a reserve requirement of 10% and a single bank in the Eurozone.

Step-by-step illustration

• Initial Deposit: A customer deposits €1,000 into the bank.
• Reserve Requirement: The reserve requirement set by the European Central Bank (ECB) is 10% of total deposits.
• Excess Reserves: The bank must keep 10% of the initial deposit as reserves, which is €100 (10% of €1,000). This leaves the bank with €900 in excess reserves that can be used for lending.
• Credit Creation: The bank lends out the €900 to a borrower.
• New Deposit: The borrower receives the €900 loan, which is then deposited into another bank (possibly the same bank, but for the sake of simplicity, let's assume it's a different bank).
• New Reserve: The receiving bank must hold 10% of the new deposit as a reserve. Since the new deposit is €900, the reserve is €90 (10% of €900).
• Repeat: The process can continue as long as there are excess reserves. When the receiving bank lends the remaining €810 (€900 - €90) to another borrower, that amount becomes a new deposit, and the cycle continues.

To summarise the changes after each round of lending and deposit:

Round 1:

Initial Deposit: €1,000

Excess Reserves: €900 (€1,000 - €100)

New Loan: €900

Total Deposits: €1,900 (€1,000 + €900)

New Reserve: €190 (10% of €1,900)

Round 2:

New Deposit: €900 (from the loan in Round 1)

Excess Reserves: €810 (€900 - €90)

New Loan: €810

Total Deposits: €2,710 (€1,900 + €810)

New Reserve: €271 (10% of €2,710)

Round 3:

New Deposit: €810 (from the loan in Round 2)

Excess Reserves: €729 (€810 - €81)

New Loan: €729

Total Deposits: €3,439 (€2,710 + €729)

New Reserve: €344 (10% of €3,439)

This process can continue, and after several rounds, the deposits will reach approximately €9,000. As you can see, a single €1,000 deposit has resulted in a significant increase in total deposits through the creation of credit by the banking system. It's important to note that the process may not reach exactly €9,000 due to rounding and other factors, but this illustration demonstrates the idea of how banks can create credit and expand the money supply in the Eurozone.

Have a look at this short video on the concept.

The Rise of Digital Currency: A Double-Edged Sword for Political Freedom

The world is witnessing a transformative shift towards digital currency, as governments and private institutions explore the potential benefits of blockchain technology and its applications. While digital currencies promise greater efficiency, transparency, and financial inclusion, concerns have emerged regarding the potential abuse of power by banks, leading to the suppression of citizens' views they disagree with.

The Advantages of Digital Currency

Digital currency, including cryptocurrencies and central bank digital currencies (CBDCs), offers numerous advantages over traditional fiat currencies. These include reduced transaction costs, faster cross-border payments, increased financial accessibility for the unbanked, and enhanced security and privacy. Additionally, CBDCs could provide governments with better tools for monetary policy implementation, allowing for more precise control over economic indicators such as inflation and unemployment. Embracing digital currency aligns with the ongoing global digitisation efforts and promises to revolutionise the financial landscape.

The Rise of Digital Currency and Banks' Potential for Abuse

As the use of digital currency becomes more widespread, banks, including private banks and central banks, gain significant influence over individuals' financial lives. The power to control digital transactions can grant banks unparalleled access to citizens' economic activities, spending habits, and financial data. While this level of oversight may ostensibly be intended to combat money laundering, tax evasion, and illicit activities, the potential for abuse is concerning, particularly when it comes to the expression of political views.

The Danger of Political Suppression

Given that financial institutions can monitor digital currency transactions, there is a risk that banks may be tempted to use this information to suppress the views of citizens with whom they disagree. In a democratic society, the right to free speech and political expression is paramount, ensuring that diverse perspectives are respected and protected. However, the misuse of financial data and the potential for banks to de-bank individuals due to their political beliefs pose a direct threat to democratic principles.

The Case of Nigel Farage

The recent controversy (July 2023) surrounding former Brexit Party leader Nigel Farage's bank accounts serves as a pertinent example. Farage claimed that NatWest's private bank, Coutts, sought to close his accounts based on political grounds. Although Coutts stated that account closures involve multiple factors, including commercial viability and reputational considerations, the incident raises questions about the potential politicisation of banks' actions.

Safeguarding Democracy in the Digital Era

To safeguard political freedom and prevent the abuse of power by banks in the digital era, several measures can be considered:

• Strong Regulatory Framework: Governments should establish robust regulations governing banks' access to individuals' financial data. Such measures should protect citizens' privacy while ensuring appropriate checks and balances to prevent undue interference.
• Transparency and Accountability: Financial institutions must be transparent about their account closure decisions and provide justifications based on objective criteria, excluding political viewpoints as grounds for action.
• Open and Inclusive Debate: Society must engage in open discussions about the implications of digital currency adoption and the potential risks associated with centralised control of financial information.
• Decentralized Solutions: Exploring decentralized digital currency options, like certain cryptocurrencies, may offer more autonomy to individuals while minimizing the concentration of power in the hands of a few entities.

The global trend towards digital currency presents an array of opportunities and challenges for our economic landscape. While digital currencies can enhance financial efficiency and inclusivity, the potential abuse of power by banks threatens to suppress citizens' political views in a democratic society. To navigate these waters successfully, it is crucial for governments, regulators, and financial institutions to work collaboratively to strike a balance between technological progress and the protection of political freedom, ensuring that digital currency serves as an enabler of economic growth without compromising our democratic principles.