In April it was announced that Greece was imposing a surcharge for all cash withdrawals from bank accounts to deter citizens from clearing out their accounts. So now the Greeks will have to pay one euro per 1,000 euros that they withdraw, which is one-tenth of a percent. It doesn't seem very big, but the principle at work is extremely big because what they're in effect doing is breaking the exchange rate between a unit of bank deposits and a unit of currency.

Why would they do this? Why would they want to do this? Well, it's one of the anti-cash policies that mainstream economists have vigorously been promoting.

PAVING THE WAY FOR NEGATIVE INTEREST

To make the calculations easier, and to illustrate the effect, let's say that the Greek "surcharge" is ten dollars for every 100 dollars withdrawn. Now, instead of being able to convert one euro in your checking account into one euro in cash, on demand, you will only be able to buy one euro in cash by spending 1.10 euros in your bank accounts. That's a negative 10-percent rate in some sense. That is to say that you can only take out one euro from the bank if you're willing to pay 1.10 euros. So, you would only really get ninety cents for every dollar that you wanted to withdraw and that's very significant because this means it will be more expensive to buy an item with cash than with bank deposits.

At the same time, the Greek government made it very clear that if you deposit the cash in the banks, you don't get 1.10 euros of bank money for every euro you deposit.

So the system is now structured to lock the money in the banks. Now, what does that allow them to do? If you lose 10 percent every time you withdraw one euro in cash, they can lower the interest rate that you get on bank deposits to negative 5 percent, or negative 6 percent. You still wouldn't withdraw your cash from the banks even if the interest rate went negative.