Currency Wars, Capital
Controls and Earthquake Kits
By Dr. Jeffrey Lewis
financial progression of currency devaluation, asset confiscation, capital
controls and ultimately political upheaval seems to have become a slippery slope
that could easily decimate whatever investment funds you may currently have
placed in paper assets.
recent threat to levy bank deposits as an alternative to providing bailout money
that was proposed as a solution to the Cyprus banking crisis has left many
depositors increasingly wary of placing the bulk of their wealth on deposit with
increasingly shaky financial institutions.
risk to depositors is the possibility of the monetary authorities reneging on
their support for deposit insurance corporations, such as the insurance
currently provided on bank account balances up to a certain limit by the
privately-owned Federal Deposit Insurance Corporation or FDIC in the United
Based on an
on-the-record statement by Eurogroup head Jeroen Dijsselbloem, that he
admittedly later backed down from somewhat, the highly controversial Cyprus
banking crisis proposal to levy depositors with troubled banks and effectively
wipe out bank bondholders is part of the Eurogroup’s strategy of “pushing back
the risks” onto those who have invested in, deposited with or operated such
offer a relatively convenient way for authorities to get around challenging
parliamentary votes and allow them to impose more bail-ins, in this case at the
expense of wealthier depositors holding over 100,000 euros.
Dijsselbloem later backtracked on the idea that this bank levy strategy might be
a template applied to other troubled European Union banks by subsequently
claiming that the especially worrisome strategy was instead “tailor made” for
Cyprus, the financial markets were understandably concerned about the
reportedly large Russian deposits currently being held in Cypriot banks, Cyprus
and Russia have been old enemies.
of the European Union’s member nations have historically had a tumultuous
co-existence, and intra-European relations have been repeatedly strained by war
and other traumatic geopolitical issues. Attempting to unite these culturally
diverse nations against a common or new enemy is an old tactic.
reckless attempt to implement a Cyprus banking rescue reveals not only the
political nature of the crisis, but also the apparent depth of ignorance that
monetary leaders like Dijsselbloem often demonstrate.
To an outside
observer, this seems almost as absurd as Japan drawing a line in the sand with
China in what could only be a form of geopolitical posturing.
Most of the major
economies are presently engaged in a policy driven race to debase their national
currencies in the name of boosting exports, but which is unofficially being
performed to reduce the value of their increasingly overwhelming sovereign debt.
national currency for these reasons tends to be a defensive posture. It also
typically has the effect of putting everyone concerned on edge, as differences
become inflamed and old stories about what could happen become exaggerated.
debasement is something like a trade tariff, but worse, because it is all
inclusive and affects just about everyone who has dealings in that currency, not
just a specific industry or those involved in an import/export business.
Controls, Earthquakes and Financial Meltdowns
The effect on the
foreign exchange market of the imposition of capital controls is that it tends
to magnify the importance of the declared legal tender. Furthermore, citizens
of the affected country become financial captives of their state, as capital
controls tend to result in monetary policies that lack wisdom, common sense and
At the base of the
problem is typically a paper currency that also happens to be a commodity with
little to no intrinsic worth, that produces virtually no interest or dividend
and which is only backed by the promises of a sovereign nation whose monetary
policies seem inhumane to the middle class, the poor and the elderly.
precious metals like silver to use as hard currency during surprise ‘banking
holidays’ and other financial meltdowns — as well as in the aftermath of severe
earthquakes or other natural disasters — seems a prudent course of action in
today’s uncertain world.
articles like this, and to stay updated on the most important economic,
financial, political and market events related to silver and precious metals,