An important principle for any burgeoning investor to remember is that the behavioural elements of the markets trade on expectations- expectations of company profitability (or lack thereof), a mantra which embodied by sayings like, “buy the rumor and sell the news”, and “markets trade on greed and fear”.  Fundamentals are important, of course, but generally markets can remain oblivious to the underlying fundamentals for some time.

Politicians and some economists (especially central bankers), tend to take advantage of this when they plan ahead, often talking markets up and down with press releases, and trying to influence broad market expectations (see: forward guidance).

Bankers, creditors, and politicians would like eliminate cash at present, in order to make tax revenue easier to capture but unfortunately many people, especially the elderly, are currently still using cash.  This week we saw the US media float the idea that they were planning to eliminate the 100 US Dollar bill.  This comes after the Eurozone floats the idea of scrapping the 500 Euro note.  This acts like forward guidance, shifting market expectations and driving people out of cash and into bank balances, or other investments.

It’s quite likely that the frequency  and scope of articles on the television and in the media will increase in coming months. Governments will do this to shift public perception and mitigate the problems associated with shifting from paper to electronic.

Initially the printing presses will cease to produce these paper notes.  Finally, as the money gets spent into the economy, they will be gathered and destroyed by the issuing bodies (regional treasuries).

Electronic currency: coming soon to a developed country near you.

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