How Safe Is Your Cash?

‘How safe is my money?’

If I had a dollar for every email I received about that, I’d be a helluva lot wealthier. The only problem is, where would I put all these extra dollars?

In the bank?

Under my bed?

Buy gold?


What a dilemma.

The reasons for the increase in email traffic to my inbox are twofold.

First, this extract from The Australian Financial Review on 8 November 2017:

Treasurer Scott Morrison said in August [2017] the new crisis resolution powers bill will “overhaul the powers of APRA during times of financial crisis” by providing APRA with “powerful, flexible and timely tools to resolve financial institutions in distress”.

The draft legislation (introduced on the same day as the Banking Executive Accountability Regime) will give APRA “an expanded set of crisis resolution powers that equip APRA to act decisively to facilitate the orderly resolution of a distressed bank or insurer”, the government added.

Whenever governments start to meddle with legislation and use motherly statements like “powerful, flexible and timely tools to resolve financial institutions in distress”, those who are a tad skeptical of bureaucrats think they smell a rat. The feeling is that APRA will be given the power — if needed — to change the deposit guarantee goalposts.

Second, the recent ructions on Wall Street have brought to the surface feelings of ‘this is the beginning of the end’. If this is the start of something far bigger and nastier, the viability of our banking system is most certainly under threat.

Both of these are very valid concerns that I’ve addressed at some length in a several editions of The Gowdie Letter.

Rather than re-inventing the wheel, the following is an edited extract from the 4 August 2017 edition…

The most asked question

‘…the question [is] ‘how safe is our money in the bank?’

The following is an edited version of a recent email:

“Hi Vern

“The problem now is that without a global currency reset to wipe out all this massive debt then the next correction WILL be massive and it will shut down the entire financial system. The only potential solution lies with the IMF’s SDR’s and to implement this will take at least 6 months. Imagine the chaos, riots and anarchy that will reign with this.

“There is no way the government can protect anyone in any country in the world from taking a financial haircut when this comes into being which is why all of the above [digital currency, removing $100 note from circulation etc.] is being implemented.

“My question is Vern, why do you think the multiple strategy of accounts below $250,000 is going to save you or others as there is no way for a government to honour that amount of money. When it’s happened in other countries when faced with the following issues they have frozen all accounts, hair cutted them and virtually made them inaccessible. Would hate to be a business when all this hits.

“Would it be better buying precious stones or something that will be tradable for food when it happens?



The Armageddon-type scenario outlined in Jamie’s email is one that’s often raised by readers.

Anarchy. Chaos. Riots. Money is worthless. Gold is priceless.

We are guessing as to what this type of world might be like. None of us really know.

To try and see what it might be like we can look to Europe.

The citizens of Greece have (and still are) living with capital controls — restricted access to cash.

According to Reuters (16 May 2017): 

“Depositors can withdraw up to 840 euros in cash every two weeks, but face no limit on money they have deposited in banks after July last year.”

The capital controls are expected to remain in place until the end of 2018.

Greek depositors still have money in their bank account. The problem is they can only access it in bite size pieces.

According to Reuters (29 July 2017) the EU is looking at putting in place similar restrictive access measures in European Union states:

EU restrictive access measures 16-02-2018

Source: Reuters
[Click to enlarge]

Here’s an extract:

“European Union states are considering measures which would allow them to temporarily stop people withdrawing money from their accounts to prevent bank runs, an EU document reviewed by Reuters revealed.

“The plan, if agreed, would contrast with legislative proposals made by the European Commission in November that aimed to strengthen supervisors’ powers to suspend withdrawals, but excluded from the moratorium insured depositors, which under EU rules are those below 100,000 euros (US$117,000).

“Under the plan discussed by EU states, pay-outs could be suspended for five working days and the block could be extended to a maximum of 20 days in exceptional circumstances, the Estonian document said.”

The current policy, in the event of an imminent European bank failure, is to enable access to deposits below the guarantee of 100,000 euros. The proposed (but not yet adopted) measures are to freeze access to all deposits for up to 20-days.

Let’s assume the EU’s proposed model is the one that APRA (Australian Prudential Regulation Authority) adopts.

This means that your deposit — up to $250k — is guaranteed BUT you’ll only be able to access, say, $100 per day.

And, be prepared for access to be frozen for up to 3 weeks.

On 2 June 2017, the Financial Times published the following article:

Greece recession: GDP revised growth 16-02-2018

Source: Financial Times
[Click to enlarge]

The Greek economy went through a sustained period of shrinkage and is now rolling between expansion and contraction.

So what can we glean from this information?

The Greek economy — in spite of restricted access to bank accounts — still managed to function…albeit with periods of contraction. The worst contraction was 5%, which means 95% was still operating.

The world does not come to a grinding halt

There’s this mistaken belief that the world comes to a grinding halt. All commerce ceases.

That’s simply not true. Even during the Great Depression businesses did business.

Jamie asks the question: “Would it be better buying precious stones or something that will be tradable for food when it happens?”

Given that the vast majority of Australians buy their groceries from Woollies, Coles, Aldi, Costco, IGA et al, I struggle to see a cashier accepting precious stones and/or metal as payment for what’s in my trolley.

However, I can envisage them asking me to swipe my EFTPOS card — to transfer funds electronically from my bank account to the company’s account — as payment for the goods.

Then, Woollies, Coles et al will pay their employees and suppliers electronically.

From what I observed in Athens last year, more transaction will be conducted electronically.

In Athens, properties are still being bought and sold. Settlements are transacted electronically.

While the black economy is alive in well in Greece, substantial levels of business to business trade are conducted electronically.

If you sell your shares on CommSec how do you think this trade will be settled? In bitcoin, gold or with an electronic transfer of cash between buyer and seller?

Are distressed sellers of property going to accept gold, bitcoin or electronically transferred cash to payout the bank debt?

Gold and cryptocurrencies will have a market on the fringe, but day to day dealings with the major suppliers — paying council rates; paying motor vehicle registration fees; paying fines; paying power bills; paying insurance premiums; buying groceries; purchasing fuel — will all be done with the electronic transfer of cash. These suppliers are not equipped to handle alternative payment methods.

Also, what are gold and cryptocurrencies valued in? Oh that’s right…US dollars — cash.

Anyone wanting to realise the US dollar value of these alternative currencies is going to have to find someone who has cash.

Whether we like it or not, the system is (literally) geared to operate on a cash basis.

What I see happening is this:

  • A bank freeze — so keep a stash of cash (3–6 months living expenses) on hand.
  • Deposits under $250k to be guaranteed by the government BUT you will not be able to physically access this cash. Which means the Government really doesn’t have to come good with the money. However, when you look at your bank statement it’ll show that you have 100 cents in the dollar if your deposit is under $250k.
  • Capital controls will be introduced — restricting access to physical cash of $100 or so a day.
  • Still being able to buy and sell assets with the electronic transfer of cash. That suits me fine. If shares are trading at 50% to 70% below current values, I’m happy to swap my cash for a share certificate and have the dividends paid electronically into my account.
  • Eventually the freeze will thaw. This could take years.


If I have missed something, please let me know.

But until someone can come up with a viable alternative — and by that I mean not putting all my money in gold or bitcoin OR putting cash under the mattress — then I’m sticking with spreading our money around several ADIs.

There are no guarantees with ANY investment.

However, I’m fairly certain the government will do all it can to guarantee its survival.

Therefore, I expect the government of the day to bow to public pressure — like Rudd and Swan did in 2008 — and restore relative calm with an approach of ‘whatever it takes’.

We may well be entering a period of extreme volatility and uncertainty. If you want to learn how to keep your head while others are losing theirs, please go here.


Vern Gowdie,
Editor, The Gowdie Letter

Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

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