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It’s as simple as this: If you’ve saved a lot over the years, you have a lot to lose. Like many people, you probably rely on the banking system to protect your hard-earned savings. But banks are not safes. Understandably, many retail depositors see them that way and use them as though they are. But the reality is banks are businesses that grow by lending out deposited money. You could say storing money is the exact opposite of what a bank does. In a number of ways, this makes your money vulnerable. And our nearly complete transformation to an all-digital society, including a digital banking system, increases your savings’ vulnerability.
The list of ways your money could be at risk with a digital banking system continues to grow. One risk is the way central bank monetary policy can be “forced” on your savings. Another is the risk of a massive cyberattack, which could paralyze the financial system and suddenly make your savings inaccessible. Still another risk is the coming digitization of the U.S. dollar.
This article examines how these risks negatively affect the financial security of individual bank deposits.
Adverse Monetary Policy Measures Can Shrink the Savings Value
Negative interest rates are considered a drastic monetary policy measure usually applied by central banks only in the most growth-challenged nations. National central banks charge negative rates to commercial customers. Banks rarely pass negative rates to retail depositors, but that “rule” is changing as commercial banks struggle to remain profitable. In Denmark and Switzerland, for example, some depositors now are experiencing negative interest rates. In effect, they are paying fees for the “privilege” of keeping their money in banks.
Negative interest rates have yet to land on U.S. shores. However, a number of experts believe the Federal Reserve will implement this drastic monetary policy mechanism at some point by the Federal Reserve. Indeed, several former Federal Reserve chairpersons seem to favor the possible use of negative rates. One of those, Alan Greenspan, has said it’s “only a matter of time” before we see negative rates here.
Negative rates are the product of ultra-weak economies and the radical measures central banks often take in attempt to strengthen them. Ultimately, macroeconomic troubles can have a terrible effect on the money you keep stashed at your local bank.
Digital Banking System Could Catastrophically Fail with Cyberattack
There is mounting concern that a cyberattack on the financial system could trigger a crisis on the scale of the 2008 debacle. Catastrophic failure of our digital banking system could result. A 2018 Harvard Business Review article explained how such an attack might play out:
“A likely scenario would be an attack by a rogue nation or terrorist group on financial institutions or major infrastructure. Inside North Korea, for example, the Lazarus Group, also known as Hidden Cobra, routinely looks for ways to compromise banks and exploit crypto currencies. An attack on a bank, investment fund, custodian firm, ATM network, the interbank messaging network known as SWIFT, or the Federal Reserve itself would be a direct hit on the financial services system.”
The article notes that such a cyberattack would compromise the global financial system in its entirety. But it also would compromise access to individual accounts within the digital banking system. The Harvard Business Review article explains:
“Most of the ATM networks across North America could freeze. Credit card and other payment systems could fail across entire nations, as happened to the VISA network in the UK in June. Online banking could become inaccessible: no cash, no payments, no reliable information about bank accounts. Banks could lose the ability to transact with one another during a critical period of uncertainty.”
In a massive failure of the digital banking system, it’s likely no remedies could be applied before the system regains functionality. That probably would include any applicable Federal Deposit Insurance Corporation (FDIC) protections. For depositors, this might of course be a disaster that could interfere with progress toward financial goals.
Bank-Connected Digital Dollar Could Put Government in Control of Your Money
Many nations are in various stages of developing digital currency, a method of transferring money without physical bills or coins. Some fear the movement toward digitized national currency will make it impossible for anyone to keep money outside of traditional financial and digital banking systems. One consequence is that depositors would have no way to insulate money from the effects of economic actions taken by the government, such as negative interest rates.
Right now, China is the undisputed leader in the race for a national digital currency. Their efforts at digitizing the yuan are highly focused. According to the Chamber of Digital Commerce, the digital national currency system the Chinese government is assembling will be very comprehensive. Observers expect banks to fully integrate digital currency into accounts and connect it to digital currency chip cards. According to Perianne Boring, chamber president, it appears the government could use the system to track user transactions. It’s possible no sum of money will fall outside of the watchful eyes of Chinese central and retail banks.
United States’ currency is on the path to currency digitization, as well. Several respected individuals – including Federal Reserve Chairman Jerome Powell – recently confirmed the U.S. is researching a digital dollar. And remember: Alan Greenspan has said it’s only a matter of time before the American banking system implements negative interest rates. National digital currency essentially would guarantee depositors would have no way to escape from negative interest rates or any other adverse monetary policy measure wielded through the banking system
Physical Gold and Silver Provide Insulation from Banks and the Financial System
Our system of commerce makes it difficult, if not impossible, for people to cease using banks altogether. This article is not a call for anyone to stop using banks. It is intended to make readers aware of the changes happening in our economy, including potential risks they may face going forward as a result of our maturing digital banking system.
Some people, increasingly wary of banks for a variety of reasons, simply are using them less. Economist Terry Burnham made waves years ago when he announced he was removing his money from the bank. He said he would retain only what he needed to fulfill basic transactions. Burnham wrote dramatically, “Last week I had over $1,000,000 in a checking account at Bank of America. Next week, I will have $10,000.” Burnham said he had lost faith in financial institutions’ ability to withstand possible bank runs.
An alternative to relying wholly on our digital banking system for savings storage is physical precious metals. One of the most appealing features of gold and silver is their tangibility. Physical metals aren’t subject to debasement the way the government and Federal Reserve can debase currency. No one can reduce physical metals to a digital form in the same way a financial institution instantly turns cash into computerized numbers. Precious metals depositories do use digital resources for housekeeping and administrative functions. But when you deposit gold in a depository with allocated and segregated storage, the metals are always there in your name. Until you decide to withdraw them.
Freedom from Digital Banking System Just One Reason to Own Gold and Silver
Gold and silver are demonstrated safe-haven assets known to strengthen during periods of turmoil. Threats to banked monies within our digital banking system are just a few of many excellent reasons to include physical gold and silver among your holdings. Economic and geopolitical threats to retirement savings also are very important reasons to own gold and silver.
If you don’t own precious metals at this time, call award-winning Augusta Precious Metals at 800-700-1008. You’ll speak with a customer success agent who’s well-versed in the numerous threats to your financial well-being. Our team members love talking about metals and will patiently and cheerfully answer all your questions.
When you contact us, you’ll also learn if you qualify to participate in Augusta’s live Profit & Protect Web Conference. This is a special, appointment-only presentation hosted by our lead economic analyst and Harvard Business School member Devlyn Steele.
Chances are good you’ve never seen anything quite like this web conference. You’ll learn the jealously guarded secrets of the financial and government elite. This is the information that spells out, in no uncertain terms, why it is so difficult for “regular” retirement savers to reach their long-term goals.
But there’s more. Mr. Steele also will demonstrate how precious metals strategies such as opening a gold IRA can help ensure you are able to live the dream of financial independence. You’ll be in good company if you attend. Hall of fame quarterback Joe Montana said the conference “opened his eyes.” As a result, he became our customer and corporate ambassador.
Liberation from risks of depositing money into a digital banking system is just one of the many benefits of owning physical gold and silver. Let Augusta help you understand all the ways owning precious metals can potentially revolutionize your financial profile.