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Cash, Privacy, and Social Welfare
Many public policy debates reflect competing visions of what should be the appropriate balance between individual privacy/liberties and societal welfare.  For example, the public policy debate on gun regulation seeks a balance between allowing individuals unfettered access to guns and placing regulatory restrictions on gun ownership that purportedly lead to a safer society.  Similarly, the public policy debate on the appropriate level of government surveillance pits the privacy rights of individuals against the government’s need to monitor the flow of private information in the hope of pre-empting terrorist attacks.  Unquestionably, the tradeoffs societies make between preserving individual privacy/liberties and advancing societal welfare play an important role in defining societies.  Interestingly, the anonymity of cash transactions affords individuals a level of privacy that is not available from other means of payment such as checks, bank transfers, and credit cards.   Anonymity and the privacy it affords is a highly valuable resource for people engaged in illegal activities such as tax avoidance, corruption, drug trafficking, and terrorist activity.   These observations suggest that societies must strike the right balance between satisfying legitimate demands for the anonymity cash affords and protecting society from the ill effects of the illegal activities such anonymity enables.  In light of the foregoing, evaluate the accuracy of the following statement.
The quantity and composition of currency outstanding in the United States is consistent with the assertion that the government/monetary authority has chosen the appropriate balance between the societal benefits of cash and the societal costs.9/12/2016
The Case Against Cash by Kenneth Rogoff ­ Project Syndicate
ECONOMICS
KENNETH ROGOFF
Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and
recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief
economist of the International Monetary Fund from 2001 to 2003. The co‐author of This
Time is Different: Eight Centuries of Financial Folly, his new book, The Curse of Cash, will
be released in August 2016.
SEP 5, 2016
The Case Against Cash
CAMBRIDGE – The world is awash in paper currency, with major country central banks
pumping out hundreds of billions of dollars’ worth each year, mainly in very large
denomination notes such as the $100 bill. The $100 bill accounts for almost 80% of the US’s
stunning $4,200 per capita cash supply. The ¥10,000 note (about $100) accounts for
roughly 90% of all Japan’s currency, where per capita cash holdings are almost $7,000. And,
as I have been arguing for two decades, all this cash is facilitating growth mainly in the
underground economy, not the legal one.
I am not advocating a cashless society, which will be neither feasible nor desirable anytime
soon. But a less‐cash society would be a fairer and safer place.
With the growth of debit cards, electronic transfers, and mobile payments, the use of cash
has long been declining in the legal economy, especially for medium and large‐size
transactions. Central bank surveys show that only a small percentage of large‐
denomination notes are being held and used by ordinary people or businesses.
Cash facilitates crime because it is anonymous, and big bills are especially problematic
because they are so easy to carry and conceal. A million dollars in $100 notes Ἃḋits into a
briefcase, a million dollars in €500 notes (each worth about $565) Ἃḋits into a purse.
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The Case Against Cash by Kenneth Rogoff ­ Project Syndicate
Sure, there are plenty of ways to bribe ofἋḋicials, engage in Ἃḋinancial crime, and evade taxes
without paper currency. But most involve very high transaction costs (for example, uncut
diamonds), or risk of detection (say, bank transfers or credit card payments).
Yes, new‐age crypto‐currencies such as Bitcoin, if not completely invulnerable to detection,
are almost so. But their value sharply Ἃḋluctuates, and governments have many tools with
which they can restrict their use – for example, by preventing them from being tendered at
banks or retail stores. Cash is unique in its liquidity and near‐universal acceptance.
The costs of tax evasion alone are staggering, perhaps $700 billion per year in the United
States (including federal, state, and local taxes), and even more in high‐tax Europe. Crime
and corruption, though difἋḋicult to quantify, almost surely generate even greater costs.
Think not just of illegal drugs and racketeering, but also of human trafἋḋicking, terrorism,
and extortion.
Moreover, cash payments by employers to undocumented workers are a principal driver of
illegal immigration. Scaling back the use of cash is a far more humane way to limit
immigration than building barbed‐wire fences.
If governments were not so drunk from the proἋḋits they make by printing paper currency,
they might wake up to the costs. There has been a little movement of late. The European
Central Bank recently announced that it will phase out its €500 mega‐note. Still, this long
overdue change was implemented against enormous resistance from cash‐loving Germany
and Austria. Yet even in northern Europe, reported per capita holdings of currency are still
quite modest relative to the massive outstanding supply in the eurozone as a whole (over
€3,000 per capita).
Southern European governments, desperate to raise tax revenue, have been taking matters
into their own hands, even though they do not control note issuance. For example, Greece
and Italy have been trying to discourage cash use by capping retail cash purchases (at
€1,500 and €1,000, respectively).
Obviously, cash remains important for small everyday transactions, and for protecting
privacy. Northern European central bankers who favor the status quo like to quote Russian
novelist Fyodor Dostoevsky: “Money is coined liberty.” Of course, Dostoevsky was referring
to life in a mid‐nineteenth century czarist prison, not a modern liberal state. Still, the
northern Europeans have a point. The question is whether the current system has the
balance right. I would argue that it clearly does not.
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The Case Against Cash by Kenneth Rogoff ­ Project Syndicate
A plan for reining in paper currency should be guided by three principles. First, it is
important to allow ordinary citizens to continue using cash for convenience and to make
reasonable‐size anonymous purchases, while undermining the business models of those
engaged in large, repeated anonymous transactions on a wholesale level. Second, any plan
should move very gradually (think a decade or two), to allow adaptations and mid‐course
corrections as unexpected problems arise. And, third, reforms must be sensitive to the
needs of low‐income households, especially those that are unbanked.
In my new book, The Curse of Cash, I offer a plan that involves very gradually phasing out
large notes, while leaving small notes ($10 and below) in circulation indeἋḋinitely. The plan
provides for Ἃḋinancial inclusion by offering low‐income households free debit accounts,
which could also be used to make government transfer payments. This last step is one that
some countries, such as Denmark and Sweden, have already taken.
Scaling back paper currency would hardly end crime and tax evasion; but it would force the
underground economy to employ riskier and less liquid payment devices. Cash may seem
like a small, unimportant thing in today’s high‐tech Ἃḋinancial world, but the beneἋḋits of
phasing out most paper currency are a lot larger than you might think.
http://prosyn.org/o3XfSqO
© 1995‐2016 Project Syndicate
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Presented at NBER Macroeconomics Annual Conference, April 11, 2014
This version May 5, 2014
Corrected May 16, 2014
Costs and benefits to phasing out paper currency
By Kenneth Rogoff1, Harvard University
This paper explores the costs and benefits to phasing out paper currency,
beginning with large-denomination notes, later extending to all but small coins and bills,
and eventually those as well. It is hardly a simple issue; paper currency is deeply
ingrained in the public’s image of government and country, and any attempt to change
long-standing monetary conventions raises a host of complex issues. The symbolic value
of the euro, for example, as a flag for nascent European Institutions, is hard to overstate.
Nevertheless, it is important to ask whether currency in paper form has outlived its
usefulness. Credit and debit cards today are increasingly being used for even small
transactions. And although today’s crypto-currencies fall far short of being true
currencies – for one thing their prices are simply too volatile – the underlying
technologies may ultimately strengthen the menu of electronic payments options.2
Zero-interest negotiable bonds as an obstacle to negative policy interest rates
1
An earlier draft of this paper formed the basis for a dinner speech at the April 11, 2014, NBER
Macroeconomics Conference in Cambridge MA. The author is grateful to Ruth Judson and Stephanie Lo
as well as to NBER conference participants for extremely helpful comments, and to Madhusudan Vijay and
Diana Zhu for research assistance.
2 The public may use the terms “currency” and “money” interchangeably, but economists do not. Modern
central banks typically report several constructs of money, ranging from a narrow one that includes only
currency and (electronic) bank reserves at the central bank, to increasingly broad ones that include, for
example, transactions deposits at financial institutions (e.g., checking accounts), time deposits, and
holdings of shares at money market mutual funds. Currency in the US accounts for roughly 10% of the
Federal Reserve’s main monetary aggregate, M2.
Paper currency has two very distinct properties that should draw our attention.
First, it is precisely the existence of paper currency that makes it difficult for central
banks to take policy interest rates much below zero, a limitation that seems to have
become increasingly relevant during this century. As Blanchard et al. (2010) point out,
today’s environment of low and stable inflation rates has drastically pushed down the
general level of interest rates. The low overall level, combined with the zero bound,
means that central banks cannot cut interest rates nearly as much as they might like in
response to large deflationary shocks.
If all central bank liabilities were electronic, paying a negative interest on
reserves (basically charging a fee) would be trivial. But as long as central banks stand
ready to convert electronic deposits to zero-interest paper currency in unlimited amounts,
it suddenly becomes very hard to push interest rates below levels of, say, -0.25 to -0.50
percent, certainly not on a sustained basis. Hoarding cash may be inconvenient and risky,
but if rates become too negative, it becomes worth it.3
In a series of insightful papers, Willem Buiter (2009 and citations therein) has
discussed whether it might be possible to find devices for paying negative interest rates
on currency.4 Buiter notes that there were experiments with stamp taxes during the Great
Depression (currency would remain valid only if it were regularly stamped to reflect tax
payment). There are a variety of other ideas. For example, Mankiw (2009) points out that
the central bank could effectively tax currency by holding lotteries based on serial
numbers, and making the “winners” worthless.
3
Of course, central banks can and do impose required reserves at sub-market interest rates as a
tax on banks. The problem is when the implied interest rates for depositors turn negative.
4
Buiter (2009) credits Gesell (1916) as the first to moot the idea of taxing currency.
Paying a negative interest rate on currency, or on electronic reserves at the central
bank, may seem barbaric to some. But it is arguably no more barbaric than inflation,
which similarly reduces the real purchasing power of currency. The idea of raising target
inflation to reduce the likelihood of hitting the zero bound is indeed an alternative
approach. Blanchard et al. point out that if central banks permanently raised their target
inflation rates from 2% to 4%, it would leave them scope to make deeper cuts to real
interest rates in severe downturns. Arguably, paying negative interest rates is a better
approach if, as many believe, inflation becomes more unstable as the general level of
inflation rises. Robert Hall (1983) argues forcefully that the central role of monetary
policy should be to provide a stable unit of account, and in principle the ability to pay
negative interest rates facilitates its ability to achieve this in today’s low inflation
environment (Hall, 2002, 2012).
Even if there is a good case for allowing the central bank to pay a significant
negative interest rate to fight a large deflationary shock, what is to stop a government
from using negative interest rates as a wealth tax in normal times? This is a complex
issue that parallels many of the problems in trying to design central bank institutions that
will resist the temptation to inflate. Nevertheless, the challenges of conducting monetary
policy at the zero bound force consideration of alternatives to the status quo. If, as
Reinhart and Rogoff (2014) conjecture, business and financial cycles in the 21st century
may produce larger fluctuations than they did in the last part of the 20th century, the issue
of hitting the zero bound may indeed remain a recurrent one.
Anonymous money as a vehicle for facilitating tax evasion and illegal activity
We now turn to a second drawback to paper currency. Paper currency facilitates
making transactions anonymous, helping conceal activities from the government in a way
that might help agents avoid laws, regulations and taxes. This is a big difference from
most forms of electronic money that, in principle, can be traced by the government. (We
discuss the issue of substitute anonymous transactions vehicles such as Bitcoin, later on.)
Standard monetary theory (e.g., Kiyotaki and Wright 1989) suggests that an
essential property of money is that neither buyer nor seller requires knowledge of its
history, giving it a certain form of anonymity. (A slight caveat is that the identity of the
buyer might be correlated with the probability of the currency being counterfeit, but until
now this is a problem that governments have been able to contain.) There is nothing,
however, in standard theories of money that requires transactions to be anonymous from
tax- or law-enforcement authorities. And yet there is a significant body of evidence that a
large percentage of currency in most countries, generally well over 50%, is used precisely
to hide transactions. I have summarized the international evidence in earlier research
(Rogoff 1998, 2002). Other than the introduction of the euro, rather little has changed
except that, if anything, anonymous currencies have continued to grow at a faster rate
than nominal GDP.
Given that banks and businesses are typically quite efficient in their cash
management (as evidenced by several central bank surveys), the most surprising fact
about currency is the sheer extant amount that most OECD countries have in circulation,
far in excess of anything that can be traced to legal use in the domestic economy. Table 1
gives data on currency by denomination and as a share of GDP for the United States, the
Eurozone, Japan and Hong Kong. For example, as of March 2013, there was almost 1.3
trillion dollars in US currency in circulation, or roughly $4,000 for every man, woman
and child living in the United States. Moreover, nearly 78% of the total value is in $100
bills, meaning more than thirty $100 bills per person. By contrast, denominations of $10
and under accounted for less than 4% of the total value of currency in use.
The size of dollar currency holdings, relative to GDP or per capita, is hardly
unique. Indeed, in the US the currency supply is 7% of GDP, in the Eurozone 10%, and
in Japan 18%. Despite having lower per capita income, the Eurozone also has roughly
$4,000 in euros for every one of its citizen (valued at the April 2014 euro–dollar
exchange rate). The euro has a much greater range of high denominations, so the value is
not as concentrated in a single denomination as in the United States. Nevertheless, the
same basic phenomenon holds, with roughly a third of the value of euro currency held in
50 euro notes (roughly $70), and another third in 500 euro notes (roughly $700). Adding
in 100 and 200 euro notes brings the percent of high-denomination notes close to that of
the US. In Japan, the total amount of currency outstanding is similar to that in the United
States and Europe, despite having a population size only 40% as large. The concentration
in the highest denomination is even more acute, with 87% of the value of notes being in
10,000 yen notes, the largest denomination, roughly $100 at April 2014 exchange rates.5
It is true that in the case of the US and the euro area, there is fairly convincing
evidence that a large share is held abroad. Porter and Judson (1996) use seasonal
comparisons with Canada and biometric techniques to infer that roughly 70% of US
currency is held abroad. It should be noted that Canada is a country that has relatively
low currency use compared to many other advanced countries. However, the fact that
5 Rogoff (1998, 2002) looks at a wide range of OECD countries, and indeed the US does not particularly
stand out as having high per capita GDP currency holdings.
currency outstanding is comparable to the US in so many other OECD countries, most of
whose currencies are used only domestically, suggests that perhaps the size of currency
holdings in the US is similarly quite large; Rogoff (1998) speculates that the ratio of US
currency held internationally may be closer to 50%. Of course, as interest rates have
fallen to near zero in recent years, it is not surprising that the demand for currency in the
domestic US economy appears to have risen; using similar techniques to her earlier work,
Judson (2012) estimates around 50% of US dollars are held domestically post financial
crisis. Even if foreign holdings of currency are important for a few countries (including
also Hong Kong and Switzerland), this is not thought to be the case for most OECD
countries. The Japanese yen does not appear to be a significant international currency.
In any event, it is clear that the long-term trend domestic demand for currency in
the legal economy is dwindling, due in part to advances in cashless payments.6 As
already noted, the small number of central bank surveys that have been performed to
measure domestic use of currency in the legal economy typically find very low
percentages, on the order of 10–15% of total extant currency in the case of the United
States (see also Feige 2012a, b). Cash is used more intensively in some Eurozone
countries. Fischer, Kőhler and Seitz (2004) use a wide range of methods to estimate the
transactions demand for currency within the euro area to be 25–35% of total euro
currency in circulation. This estimate is broadly in accord with European Central Bank
surveys taken after the financial crisis (ECB 2011) that reported holdings and demand for
euro in the legal domestic economy of roughly 1/3 of total euros outstanding. Of the
remainder, Bartzsch, Rősl and Seitz (2011) look at euro notes issued by the Bundesbank
Wang and Wolman (2014) use transaction-level data from a large discount chain to conclude
that the cash share of retail sales in the United States will decline by 2.54% per year.
6
and find that between 40 and 55% are held outside of Eurozone countries. (It is quite
possible that the overall level of euro notes held outside the Eurozone is lower, since
Bundesbank-issued notes are particularly popular, even if in principle all the Eurozone
central bank notes should be perfect substitutes.)
Presumably, currency that is not held in the domestic legal economy or in the
global economy (legal and underground) is mainly held in the domestic underground
economy.7 The underground economy includes agents evading taxes, laws and
regulation. The size of the underground economy is not known within any precision,
though estimates for the US are on the order of 7–10% of GDP (e.g., IRS 2012, Feige
2012). The IRS estimates that for the benchmark year 2006, the tax gap (tax not paid
voluntarily) is over $450 billion, with a gap of $385 billion still remaining after tax
collection efforts. Importantly, this estimate does not include the informal economy (US
Treasury Inspector General 2013). In Europe, where taxes are higher and regulation is
often more onerous, most estimates suggest that the size of the underground economy is
considerably larger than in the US (see Schneider, Buehn and Montenegro 2010).
Summing up, currency should be becoming technologically obsolete. However,
in no small part due to its association with the underground economy, it is not.
Arguments against phasing out paper currency
The arguments for eliminating paper currency are impressive, but there are
important points on the other side of the equation. The most straightforward is
seigniorage. The United States money supply increased by an average of roughly $30
7 It is possible that survey respondents underreport even those cash holdings that are for completely
legitimate purposes, for example by individuals who simply do not trust banks. I am implicitly
assuming this is the not nearly as important quantitatively as cash holdings used to avoid taxes or to
engage in illegal activities.
billion per year from 2002–2007, and averaged roughly $70 billion dollars per year in the
years immediately following the financial crisis. The magnitudes are similar in many
other large advanced countries. If a phase-out of paper currency were simply met by an
increased demand for electronic central bank reserves, there would of course be no
significant loss. However, precisely because paper currency is anonymous, replacing it
with non-anonymous electronic money would likely lead to a large shrinkage in demand,
and Treasuries would have to absorb the loss. Rogoff (1998) conjectures that this cost
might be fully compensated if a modest fraction of the underground economy is induced
to pay taxes, and there are also of course potential gains from reduced law-enforcement
costs. It is unclear how easily these activities could substitute into other transactions
media, but presumably this could be made difficult by restricting other potential
anonymous transactions vehicles.
Of course, if the government simply replaced paper currency with electronic
currency that it could somehow credibly make anonymous, there would be not
necessarily any long-run shrinkage in demand. The government would continue to garner
seigniorage revenues from the underground economy and the problem of the zero bound
on nominal interest rates would be effectively eliminated. That said, it is far from clear
that the government can credibly issue a fully anonymous electronic currency and even if
it could, anonymous electronic fiat money has all the drawbacks of an anonymous paper
currency in facilitating tax evasion and illegal activity.
There is also a question of how forcing a more rapid shift to cashless payments
would affect transactions costs. Retailers are typically forced to pay a pro-rata fee to
companies such as MasterCard and Visa for credit card services. But handling paper
currency also entails substantial costs to protect against theft and pilferage. Also, in
principle, the Federal government could allow individuals to maintain ATMs and debit
cards at the Federal Reserve, and arguably these could be serviced by private
subcontractors at lower cost than conventional bank services.
Another important argument for maintaining the status quo is that eliminating a
core symbol of the monetary regime could disrupt common social conventions for using
money, possibly in unexpected ways. For example, it could lead to a precipitous decline
in demand for debt and not just for fiat money. This need not happen. In his hugely
influential book on monetary policy, Woodford (2003) shows that central bank
stabilization policy can work perfectly well in the limit as money’s role in transactions
goes to zero. As long as social price-setting convention remains, and as long as the
central bank can manipulate banks’ reserves to set the price level, monetary stabilization
policy can still operate with full force. However, one must be careful that just because a
similar equilibrium can obtain with or without a significant transactions role for money, it
does not necessarily mean that private agents will focus on the same equilibrium as they
would when there exists paper currency. Yes, the government can help coordinate
expectations by insisting that taxes are paid in the electronic fiat currency, and that all
state contracts be denominated in this currency. But it is important to acknowledge that
there is a least an outside risk that if the government is too abrupt is abandoning a
century-old social convention, it will destabilize inflation expectations, introduce a risk
premium into bond pricing, and generally induce unexpected macroeconomic
instabilities.
There is also a potential risk to central bank independence. Even if eliminating
currency is at least revenue neutral for the government as a whole, the central bank is the
one that will lose seigniorage revenue. The Treasury is the one that will correspondingly
gain through higher tax revenues and lower law-enforcement costs. Under longstanding
institutional relationships, the ability to self-finance has put central banks in a privileged
position. Although governments typically maintain oversight of central bank budgets, the
fact that the central bank nominally appears to be a “profit center” considerably
strengthens its hand in maintaining operational independence. In recent years,
quantitative easing has been a massive money maker, but this is not the normal state of
affairs when currency provision is a key source of revenue.
Another argument for maintaining paper currency is that it pays to have a
diversity of technologies and not to become overly dependent on an electronic grid that
may one day turn out to be very vulnerable. Paper currency diversifies the transactions
system and hardens it against cyber attack, EMP blasts, etc. This argument, however,
seems increasingly less relevant because economies are so totally exposed to these
problems anyway. With paper currency being so marginalized already in the legal
economy in many countries, it is hard to see how it could be brought back quickly,
particularly if ATM machines were compromised at the same time as other electronic
systems.8
A different type of argument against eliminating currency relates to civil liberties.
In a world where society’s mores and customs evolve, it is important to tolerate
experimentation at the fringes. This is potentially a very important argument, though the
8 It is true that nearly all disaster‐preparedness instructions recommend holding cash, though unless
individuals are following this advice, there would still need to be a mechanism for distributing
currency after a catastrophe.
problem might be mitigated if controls are placed on the government’s use of information
(as is done say with tax information), and the problem might also be ameliorated if small
bills continue to circulate.9
Last but not least, if any country attempts to unilaterally reduce the use of its
currency, there is a risk that another country’s currency would be used within domestic
borders. Even if that risk is not great for a country like the United States, there is still the
loss of revenue from foreign users of currency (many of whom may be engaged in
underground or illegal activities within their own borders, even if not within US
borders).10 Thus, any attempt to eliminate large-denomination currency would ideally be
taken up in a treaty that included at the very least the major global currencies.
Conclusions
Paper currency came into prominent worldwide use at the time of World War I,
and has played a major role in shaping the global history of the last 100 years. Despite
huge and ongoing technological advances in electronic transactions technologies, it has
remained surprisingly durable, even if its major uses seem to be buried in the world
underground and illegal economy. With many central banks now near or at the zero
interest rate bound, there are increasingly strong arguments for exploring how it might be
phased out of use. True, there are many arguments for not disturbing the status quo,
9 I am implicitly assuming that if only small bills remain in circulation, the central bank would still
have the practical capacity to lower interest rates to significantly more negative levels than if large
bills continue to circulate, since hoarding costs are much greater for any large sum.
10 Obviously, some foreign use of dollar and euro currency is beneficial to the local economies, even if
a significant share goes to facilitating illegal and underground activities. Thus, some countries may
consider it detrimental to their interests to see phasing out of dollar and euro paper currency.
However, in an era where inflation rates in most countries have fallen radically over the past two
decades (making local currencies more attractive), the benefits of being able to use dollar and euro
paper currency in the legal economy has presumably been falling, and will continue to do so.
ranging from the importance of seigniorage revenues to civil liberties arguments. Given
relentless technological advance, embodied in everything from mobile banking to
crytocurrencies, we may already live in the twilight of the paper currency era anyway,
Nevertheless, given the role of paper currency (especially large-denomination notes) in
facilitating tax evasion and illegal activity, and given the persistent and perhaps recurring
problem of the zero bound on nominal interest rates, it is appropriate to consider the costs
and benefits to a more proactive strategy for phasing out the use of paper currency.
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Wang, Zhu and Alexander L. Wolman. 2014. “Payment Choice and the Future of
Currency: Insights from Two Billion Retail Transactions.” Federal Reserve Bank
of Richmond Working Paper No. 14-09 (April).
Woodford, Michael. 2003. Interest and Prices; Foundations of a Theory of Monetary
Policy. Princeton and Oxford: Princeton University Press.
Table 1
EUROPE
Currency in circulation – February 20, 2014
Denomination
Value (in thousands of euros)
Value (% of total currency)
Value (% of 2013 GDP)
€5
€ 8,028,790.8
0.838%
0.084%
€ 10
€ 20,115,075.4
2.100%
0.210%
€ 20
€ 57,254,121.0
5.978%
0.598%
€ 50
€ 335,791,854.3
35.063%
3.507%
€ 100
€ 183,322,233.0
19.142%
1.915%
€ 200
€ 39,428,190.4
4.117%
0.412%
€ 500
€ 289,720,996.0
30.252%
3.026%
Total (banknotes)
€ 933,661,260.8
97.491%
9.752%
All coins
€ 24,029,083.2
2.509%
0.251%
Total (incl. coins)
€ 957,690,344.0
100%
10.003%
Sources: http://www.ecb.europa.eu/stats/euro/circulation/html/index.en.html and
http://sdw.ecb.europa.eu/browseSelection.do?DATASET=0&sfl1=3&sfl2=4&REF_AREA=308&sfl3=4&BKN_ITEM=NC10&node=
5274891
Denomination
HK$10
HK$20
HK$50
HK$100
HK$500
HK$1,000
Total (banknotes)
All coins
Total (incl. coins)
HONG KONG
Currency in circulation – end 2012
Value (in billions of HKD)
Value (% of total currency)
HK$2.92
0.967%
HK$11.38
3.773%
2.322%
HK$7.00
HK$27.13
8.998%
HK$74.09
24.574%
HK$169.19
56.115%
HK$291.70
96.750%
3.250%
HK$9.80
HK$301.50
100%
Value (% of 2012 GDP)
0.143%
0.558%
0.344%
1.332%
3.637%
8.305%
14.319%
0.481%
14.800%
Source: http://www.hkma.gov.hk/media/eng/publication‐and‐research/annual‐report/2012/11_Monetary_Stability.pdf (page 50)
Table 1 continued
Denomination
¥500
¥1,000
¥2,000
¥5,000
¥10,000
Total (banknotes)
All coins
Total (incl. coins)
JAPAN
Currency in circulation – February 2014
Value (in 100 millions of yen)
Value (% of total currency)
¥1,066
0.118%
¥38,036
4.193%
¥1,995
0.220%
¥29,595
3.262%
¥790,196
87.101%
¥861,335
94.942%
¥45,884
5.058%
¥907,220
100%
Value (% of 2013 GDP)
0.022%
0.795%
0.042%
0.619%
16.519%
18.006%
0.959%
18.965%
Source: http://www.stat-search.boj.or.jp/index_en.html
UNITED STATES
Currency in circulation – December 31, 2013
Denomination
Value (in billions of dollars)
Value (% of total currency)
Value (% of 2013 GDP)
$1
$10.6
0.885%
0.063%
$2
$2.1
0.175%
0.013%
$5
$12.7
1.060%
0.076%
$10
$18.5
1.544%
0.110%
$20
$155.0
12.935%
0.923%
$50
$74.5
6.217%
0.443%
$100
$924.7
77.168%
5.504%
$500 to $10,000
$0.3
0.025%
0.002%
Total
$1,198.3
100%
7.133%
Source: http://www.federalreserve.gov/paymentsystems/coin_currcircvalue.htm
Understanding Consumer Cash Use:
Preliminary Findings from the
2016 Diary of Consumer Payment Choice
Introduction
The public’s demand for cash continues to grow as the amount of currency in circulation
reached $1.43 trillion in October 2016. In addition, data from the Federal Reserve’s Diary of
Consumer Payment Choice (DCPC) shows that cash remains the most frequently used payment
instrument accounting for 31 percent of all consumer transactions. Developed by the Federal
Reserve Bank of Boston in collaboration with the Federal Reserve Banks of San Francisco and
Richmond, this study provides a unique view into consumer shopping and payment decisions,
including their use of cash.1 Preliminary analysis of the 2016 DCPC data indicates that:

Most consumer payments are for small value transactions, and cash predominates these
small value payments. Approximately 60 percent of in-person payments under $10 were
made in cash, compared to 20 percent of in-person transactions for $25 or more.

Cash is held and used by a large majority of consumers, regardless of age and income;
however, how it is used varies across demographic groups.

Consumers’ opportunities to use cash are limited to in-person transactions for the most
part. In 2016, only 75 percent of all payments were conducted in person.
This FedNotes uses preliminary findings from the 2016 DCPC to dig deeper into who uses cash
and why. The paper is organized in four sections: Section 1 provides an overview of aggregate
demand for cash; Section 2 reports on transaction shares by payment instrument; Section 3
reports on payment instrument use by demographic characteristics; and Section 4 discusses the
implications of changing shopping patterns.
1
See the forthcoming Federal Reserve Bank of Boston Research Data Report on “The 2016 Diary of Consumer
Payment Choice” at https://www.bostonfed.org/about-the-boston-fed/business-areas/consumer-paymentsresearch-center.aspx.
Federal Reserve System Cash Product Office (11/28/17)
Page 1 of 9
Section 1. Demand for currency is growing, particularly as a store of
value
As highlighted in a recent posting by Federal Reserve Bank of San Francisco President John
Williams,2 demand for cash is on the rise, both in the United States and across the globe. Figure
1 shows the growing demand for all
denominations of U.S. notes, with
particularly strong demand for high
Figure 1: Number of Notes in Circulation
by Denomination
value denominations. Since 2009,
the compound annual growth rate
(CAGR) for the number of notes in
circulation has been 5.6 percent,
with the value of currency in
circulation growing at a 7.4 percent annual growth rate.3
The growth of currency in circulation is driven by both international and domestic demand for
cash. In both of these markets, cash can be used as a payment instrument and as a store of
value. Store of value demand for $50 and $100 denominations is greater in the international
market, and payment instrument demand for the $1 through $20 denominations is greater
domestically. While most $100s are held internationally, the majority of currency shipments to
and from the Federal Reserve Banks are destined for the domestic market. Yet, determining
which consumers are using cash and for what purpose – store of value or transactional use cannot be ascertained from aggregate volume / value data alone. To better understand how
consumers use cash, data at the payment level is needed.
Section 2. Cash is widely used, and heavily used for smaller purchases
As in prior years, results from the DCPC indicate that by volume of transactions cash was the
most used payment instrument in 2016, ahead of both debit and credit cards. Figure 2 shows
2
Reports of the Death of Cash are Greatly Exaggerated, SF Fed Blog, FRBSF.org – November 2017
The annual growth rate for both the number of notes in circulation and the value of notes in circulation
calculation used the compound annual growth rate (CAGR).
3
Federal Reserve System Cash Product Office (11/28/17)
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the estimated aggregate volume and value shares of all payments (including bill payments and
non-bill payments) from the 2016 DCPC. This includes cash, check, credit cards, debit cards,
other electronic payments made through bank accounts, and other payments.4 On average,
DCPC participants reported making 46 transactions per month, and used cash to pay for 14 of
those transactions (31 percent). Debit and credit made up 27 and 18 percent respectively.
Figure 2: 2016 Volume and Value Percent, by Payment Instrument
By value, the average cash transaction was approximately $22, while average debit card and
credit card transactions were $44 and $57, respectively. Overall, cash payments accounted for
eight percent of the average $4,000 that participants reported spending during the month,
while debit accounted for 13 percent and credit card payments accounted for 14 percent.
The value of the payment appears to influence whether a consumer chooses to use cash, debit,
credit, or another form of payment. As shown in Figure 3, cash is used most often for payments
less than $25, while credit and debit cards are used more frequently for payments valued
between $25 and $100. Checks and electronic payments are used more frequently for
transactions valued $100 and over. Since the majority of all consumer payments are for less
than $25, cash is – overall – the most frequently used instrument.
4
Other payments include money orders, traveler’s checks, PayPal, Venmo, and text message payments.
Federal Reserve System Cash Product Office (11/28/17)
Page 3 of 9
In addition to transactions, the DCPC asks individuals about their payment preferences.5
Importantly, individuals
Figure 3: Payment Use by Amount 2016
who stated a general
preference for debit and
credit cards when making
“everyday” (non-bill)
purchases frequently use
cash for small value
payments.
This shift away from their
preferred method does
not appear to be driven by merchant restrictions on card use for small value payments. Those
preferring debit and credit cards reported that only 20 percent of their transactions under $10
Figure 4: Non-Bill Payment Preference
were at merchants that did not accept
cards for these transactions. Many of
them also reported cash as their
preferred payment method for
transactions less than $10. If consumers
who prefer cards are using them only
because the merchant didn’t accept a
card for their small value transactions, it
is unlikely they would have selected cash as their preference for these transactions (Figure 4).
Section 3. Most consumers use cash, some more heavily than others
Not only is cash used frequently for small value and in-person purchases, it is also used by a
wide array of consumers. The data on cash use by household income provides two main
insights. First, consumers make – on average – 14 cash transactions per month, regardless of
5
Individuals are asked about their primary and back-up payment preferences for non-bill payments, as well as
their primary preference for bill payments, online payments, and in-person payments by amount.
Federal Reserve System Cash Product Office (11/28/17)
Page 4 of 9
household income. It is also noteworthy that cash was the most, or second most, used payment
instrument regardless of household income, indicating that its value to consumers as a
payment instrument was not limited to lower income households that may be less likely to
have access to an account at a financial institution.
At the same time,
Figure 5: Payment Instrument Use by Household Income
it is also clear from
Figure 5 that
households with
an annual income
of less than
$50,000 per year
rely more heavily
on cash than do
higher income
groups. Households earning less than $50,000 per year have considerably fewer transactions
overall and, as a result, their cash transactions make up a larger share of their total – 8 to 16
percentage points higher than those making more than $50,000.
Similar to household income, all age groups use cash (Figure 6). By absolute number of
transactions, individuals under 35 years-of-age use cash less than those over 35, with the
number of cash
Figure 6: Payment Instrument Use by Age Group
payments
equaling
approximately 9
and 16
transactions per
month,
respectively.
However, after
controlling for the
Federal Reserve System Cash Product Office (11/28/17)
Page 5 of 9
differences in the number of transactions across age groups, the intensity of cash use is
somewhat more consistent across age groups.
While cash use as a payment instrument is an important indicator of the demand for cash,
understanding how DCPC respondents chose to hold cash provides further insight. On the
evening before the start of their DCPC period and at the end of each survey day, participants
reported their available cash on-hand, which provided four data points for each diarist on their
cash holdings: the night before the DCPC started and at the end of each survey day.
Figure 7: Cash Holding Frequency
Figure 8: Average Cash Holding
Even when participants were not using cash as their primary payment instrument, many held
cash, potentially as a secondary payment option. Based on responses, nearly 85 percent of
participants held cash at the end of at least one DCPC day (Figure 7), with the average value of
those holdings being nearly $59. However, only 55 percent of participants used cash during
their assigned three-day survey period. Of those individuals who held cash in their purse,
wallet, or pocket at the end of the night, only 63 percent used cash in a transaction.
Of the participants who did not report holding cash at the end of the survey day, approximately
15 percent used cash for one or more payments. In these instances, individuals withdrew and
used the cash over the course of the day. The DCPC results suggest that some individuals
withdraw and hold cash with an option to spend it, others withdraw cash for specific
circumstances or merchants, and some withdraw and use only the cash they need for the day.
Federal Reserve System Cash Product Office (11/28/17)
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Section 4. Shopping trends are putting downward pressure on cash use
Technological developments and the continued growth of electronic and mobile commerce are
changing consumers shopping and payment habits. Because of these changing habits, an
additional factor influencing cash use is whether the consumers make payments either inperson or not-in-person. When consumers choose to shop online, or not-in-person, using cash
is almost never an option. As consumer payment locations change, it adds an additional
dimension to understanding how cash is used. Some examples of in-person payments include
brick-and-mortar stores, vending machines, parking meters, and taxis; examples of not-inperson transactions include online purchases or checks made for bill payments.6
DCPC data show approximately 75 percent of purchases took place in person. For those 25
percent of purchases that are not-in-person, over 70 percent are bill payments. Given that most
bill payments are not made with cash – even when they are made in person – the impact on
cash transactions volume is probably more muted than if non-bill payments were driving the
rising share of not-in-person purchases. This suggests that increased online payments are
causing downward pressure on cash use, but it is not nearly as high as if the percent of non-bill
transactions made up a
Figure 9: Type Shopping by Location
greater portion of not-inperson transactions.
Conclusion
Cash continues to play an
important role in our
society. Not only is the value
of currency in circulation
rising faster than gross domestic product (GDP), but cash was the most used payment
instrument by transaction volume in the 2016 DCPC study. Cash use is not limited to a specific
population; it is used by young and old, rich and poor.
6
Shopping Experience Trends and their Impact on Cash, FedNotes, FRBSF.org – April 2016
Federal Reserve System Cash Product Office (11/28/17)
Page 7 of 9
In the digital age, cash use remains resilient, not because of a lack of payment instrument
options, but rather because it is used and preferred by a range of individuals across age and
household incomes, specifically for small value transactions as well as a back-up payment
instrument. Recent events have reminded us of nature’s destructive powers and the limits of
electronic payments in times of crisis. During these times, the need for cash is great. As long as
the public continues to demand, use, and hold cash, the Federal Reserve will continue to meet
that demand.
About the Cash Product Office
As the nation’s central bank, the Federal Reserve ensures that cash is available when and where
it is needed, including in times of crisis and business disruption, by providing FedCash® Services
to depository institutions and, through them, to the general public. In fulfilling this role, the
Fed’s primary responsibility is to maintain public confidence in the integrity and availability of
U.S. currency.
The Federal Reserve System’s Cash Product Office (CPO) provides strategic leadership for this
key function by formulating and implementing service level policies, operational guidance, and
technology strategies for U.S. currency and coin services provided by Federal Reserve Banks
nationally and internationally. In addition to guiding policies and procedures, the CPO
establishes budget guidance for FedCash® Services, provides support for Federal Reserve
currency and coin inventory management, and supports business continuity planning at the
supply chain level. It also conducts market research and works directly with financial
institutions and retailers to analyze trends in cash usage.
Diary of Consumer Payment Choice
The Federal Reserve’s national Cash Product Office (CPO) studies data from the Diary of
Consumer Payment Choice (DCPC) to understand consumer cash use and anticipate its ongoing
role in the payments landscape. Developed by the Federal Reserve Bank of Boston’s Consumer
Payment Research Center (CPRC), the DCPC includes a unique dataset and is a nationally
Federal Reserve System Cash Product Office (11/28/17)
Page 8 of 9
representative survey of consumer shopping and payment decisions.7 By tracking consumer
payment transactions and preferences during a designated three-day survey period, the CPO
compares cash with other payment instruments, such as debit and credit cards, checks, and
electronic options. DCPC participants also report the amount of cash on-hand after each survey
day, as well as whether they deposited or withdrew cash throughout the day. The CPO analyzes
the DCPC data, including the impact of age and income on an individual’s payment behavior
and preferences. This detail of the stock and flow of cash at an individual level provides insight
into how consumers use cash.
Administered by the University of Southern California Dornsife Center for Economic and Social
Research, the Understanding America Study is a panel of approximately 6,000 individuals from
across the United States, of which 2,848 panelists completed the DCPC. Using the Census
Bureau’s Current Population Survey, responses were weighted to match national population
estimates. Similar to the 2012 DCPC, the month of October was selected as a “typical month” to
minimize seasonality effects in consumer spending patterns. Diarists were each assigned a
consecutive three-day period that was staggered over the month, ensuring a roughly equal
number of participants on each day.
7
DCPC participants are weighted representative by age, household income, and ethnicity.
Federal Reserve System Cash Product Office (11/28/17)
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Presented at NBER Macroeconomics Annual Conference, April 11, 2014
This version May 5, 2014
Corrected May 16, 2014
Costs and benefits to phasing out paper currency
By Kenneth Rogoff1, Harvard University
This paper explores the costs and benefits to phasing out paper currency,
beginning with large-denomination notes, later extending to all but small coins and bills,
and eventually those as well. It is hardly a simple issue; paper currency is deeply
ingrained in the public’s image of government and country, and any attempt to change
long-standing monetary conventions raises a host of complex issues. The symbolic value
of the euro, for example, as a flag for nascent European Institutions, is hard to overstate.
Nevertheless, it is important to ask whether currency in paper form has outlived its
usefulness. Credit and debit cards today are increasingly being used for even small
transactions. And although today’s crypto-currencies fall far short of being true
currencies – for one thing their prices are simply too volatile – the underlying
technologies may ultimately strengthen the menu of electronic payments options.2
Zero-interest negotiable bonds as an obstacle to negative policy interest rates
1
An earlier draft of this paper formed the basis for a dinner speech at the April 11, 2014, NBER
Macroeconomics Conference in Cambridge MA. The author is grateful to Ruth Judson and Stephanie Lo
as well as to NBER conference participants for extremely helpful comments, and to Madhusudan Vijay and
Diana Zhu for research assistance.
2 The public may use the terms “currency” and “money” interchangeably, but economists do not. Modern
central banks typically report several constructs of money, ranging from a narrow one that includes only
currency and (electronic) bank reserves at the central bank, to increasingly broad ones that include, for
example, transactions deposits at financial institutions (e.g., checking accounts), time deposits, and
holdings of shares at money market mutual funds. Currency in the US accounts for roughly 10% of the
Federal Reserve’s main monetary aggregate, M2.
Paper currency has two very distinct properties that should draw our attention.
First, it is precisely the existence of paper currency that makes it difficult for central
banks to take policy interest rates much below zero, a limitation that seems to have
become increasingly relevant during this century. As Blanchard et al. (2010) point out,
today’s environment of low and stable inflation rates has drastically pushed down the
general level of interest rates. The low overall level, combined with the zero bound,
means that central banks cannot cut interest rates nearly as much as they might like in
response to large deflationary shocks.
If all central bank liabilities were electronic, paying a negative interest on
reserves (basically charging a fee) would be trivial. But as long as central banks stand
ready to convert electronic deposits to zero-interest paper currency in unlimited amounts,
it suddenly becomes very hard to push interest rates below levels of, say, -0.25 to -0.50
percent, certainly not on a sustained basis. Hoarding cash may be inconvenient and risky,
but if rates become too negative, it becomes worth it.3
In a series of insightful papers, Willem Buiter (2009 and citations therein) has
discussed whether it might be possible to find devices for paying negative interest rates
on currency.4 Buiter notes that there were experiments with stamp taxes during the Great
Depression (currency would remain valid only if it were regularly stamped to reflect tax
payment). There are a variety of other ideas. For example, Mankiw (2009) points out that
the central bank could effectively tax currency by holding lotteries based on serial
numbers, and making the “winners” worthless.
3
Of course, central banks can and do impose required reserves at sub-market interest rates as a
tax on banks. The problem is when the implied interest rates for depositors turn negative.
4
Buiter (2009) credits Gesell (1916) as the first to moot the idea of taxing currency.
Paying a negative interest rate on currency, or on electronic reserves at the central
bank, may seem barbaric to some. But it is arguably no more barbaric than inflation,
which similarly reduces the real purchasing power of currency. The idea of raising target
inflation to reduce the likelihood of hitting the zero bound is indeed an alternative
approach. Blanchard et al. point out that if central banks permanently raised their target
inflation rates from 2% to 4%, it would leave them scope to make deeper cuts to real
interest rates in severe downturns. Arguably, paying negative interest rates is a better
approach if, as many believe, inflation becomes more unstable as the general level of
inflation rises. Robert Hall (1983) argues forcefully that the central role of monetary
policy should be to provide a stable unit of account, and in principle the ability to pay
negative interest rates facilitates its ability to achieve this in today’s low inflation
environment (Hall, 2002, 2012).
Even if there is a good case for allowing the central bank to pay a significant
negative interest rate to fight a large deflationary shock, what is to stop a government
from using negative interest rates as a wealth tax in normal times? This is a complex
issue that parallels many of the problems in trying to design central bank institutions that
will resist the temptation to inflate. Nevertheless, the challenges of conducting monetary
policy at the zero bound force consideration of alternatives to the status quo. If, as
Reinhart and Rogoff (2014) conjecture, business and financial cycles in the 21st century
may produce larger fluctuations than they did in the last part of the 20th century, the issue
of hitting the zero bound may indeed remain a recurrent one.
Anonymous money as a vehicle for facilitating tax evasion and illegal activity
We now turn to a second drawback to paper currency. Paper currency facilitates
making transactions anonymous, helping conceal activities from the government in a way
that might help agents avoid laws, regulations and taxes. This is a big difference from
most forms of electronic money that, in principle, can be traced by the government. (We
discuss the issue of substitute anonymous transactions vehicles such as Bitcoin, later on.)
Standard monetary theory (e.g., Kiyotaki and Wright 1989) suggests that an
essential property of money is that neither buyer nor seller requires knowledge of its
history, giving it a certain form of anonymity. (A slight caveat is that the identity of the
buyer might be correlated with the probability of the currency being counterfeit, but until
now this is a problem that governments have been able to contain.) There is nothing,
however, in standard theories of money that requires transactions to be anonymous from
tax- or law-enforcement authorities. And yet there is a significant body of evidence that a
large percentage of currency in most countries, generally well over 50%, is used precisely
to hide transactions. I have summarized the international evidence in earlier research
(Rogoff 1998, 2002). Other than the introduction of the euro, rather little has changed
except that, if anything, anonymous currencies have continued to grow at a faster rate
than nominal GDP.
Given that banks and businesses are typically quite efficient in their cash
management (as evidenced by several central bank surveys), the most surprising fact
about currency is the sheer extant amount that most OECD countries have in circulation,
far in excess of anything that can be traced to legal use in the domestic economy. Table 1
gives data on currency by denomination and as a share of GDP for the United States, the
Eurozone, Japan and Hong Kong. For example, as of March 2013, there was almost 1.3
trillion dollars in US currency in circulation, or roughly $4,000 for every man, woman
and child living in the United States. Moreover, nearly 78% of the total value is in $100
bills, meaning more than thirty $100 bills per person. By contrast, denominations of $10
and under accounted for less than 4% of the total value of currency in use.
The size of dollar currency holdings, relative to GDP or per capita, is hardly
unique. Indeed, in the US the currency supply is 7% of GDP, in the Eurozone 10%, and
in Japan 18%. Despite having lower per capita income, the Eurozone also has roughly
$4,000 in euros for every one of its citizen (valued at the April 2014 euro–dollar
exchange rate). The euro has a much greater range of high denominations, so the value is
not as concentrated in a single denomination as in the United States. Nevertheless, the
same basic phenomenon holds, with roughly a third of the value of euro currency held in
50 euro notes (roughly $70), and another third in 500 euro notes (roughly $700). Adding
in 100 and 200 euro notes brings the percent of high-denomination notes close to that of
the US. In Japan, the total amount of currency outstanding is similar to that in the United
States and Europe, despite having a population size only 40% as large. The concentration
in the highest denomination is even more acute, with 87% of the value of notes being in
10,000 yen notes, the largest denomination, roughly $100 at April 2014 exchange rates.5
It is true that in the case of the US and the euro area, there is fairly convincing
evidence that a large share is held abroad. Porter and Judson (1996) use seasonal
comparisons with Canada and biometric techniques to infer that roughly 70% of US
currency is held abroad. It should be noted that Canada is a country that has relatively
low currency use compared to many other advanced countries. However, the fact that
5 Rogoff (1998, 2002) looks at a wide range of OECD countries, and indeed the US does not particularly
stand out as having high per capita GDP currency holdings.
currency outstanding is comparable to the US in so many other OECD countries, most of
whose currencies are used only domestically, suggests that perhaps the size of currency
holdings in the US is similarly quite large; Rogoff (1998) speculates that the ratio of US
currency held internationally may be closer to 50%. Of course, as interest rates have
fallen to near zero in recent years, it is not surprising that the demand for currency in the
domestic US economy appears to have risen; using similar techniques to her earlier work,
Judson (2012) estimates around 50% of US dollars are held domestically post financial
crisis. Even if foreign holdings of currency are important for a few countries (including
also Hong Kong and Switzerland), this is not thought to be the case for most OECD
countries. The Japanese yen does not appear to be a significant international currency.
In any event, it is clear that the long-term trend domestic demand for currency in
the legal economy is dwindling, due in part to advances in cashless payments.6 As
already noted, the small number of central bank surveys that have been performed to
measure domestic use of currency in the legal economy typically find very low
percentages, on the order of 10–15% of total extant currency in the case of the United
States (see also Feige 2012a, b). Cash is used more intensively in some Eurozone
countries. Fischer, Kőhler and Seitz (2004) use a wide range of methods to estimate the
transactions demand for currency within the euro area to be 25–35% of total euro
currency in circulation. This estimate is broadly in accord with European Central Bank
surveys taken after the financial crisis (ECB 2011) that reported holdings and demand for
euro in the legal domestic economy of roughly 1/3 of total euros outstanding. Of the
remainder, Bartzsch, Rősl and Seitz (2011) look at euro notes issued by the Bundesbank
Wang and Wolman (2014) use transaction-level data from a large discount chain to conclude
that the cash share of retail sales in the United States will decline by 2.54% per year.
6
and find that between 40 and 55% are held outside of Eurozone countries. (It is quite
possible that the overall level of euro notes held outside the Eurozone is lower, since
Bundesbank-issued notes are particularly popular, even if in principle all the Eurozone
central bank notes should be perfect substitutes.)
Presumably, currency that is not held in the domestic legal economy or in the
global economy (legal and underground) is mainly held in the domestic underground
economy.7 The underground economy includes agents evading taxes, laws and
regulation. The size of the underground economy is not known within any precision,
though estimates for the US are on the order of 7–10% of GDP (e.g., IRS 2012, Feige
2012). The IRS estimates that for the benchmark year 2006, the tax gap (tax not paid
voluntarily) is over $450 billion, with a gap of $385 billion still remaining after tax
collection efforts. Importantly, this estimate does not include the informal economy (US
Treasury Inspector General 2013). In Europe, where taxes are higher and regulation is
often more onerous, most estimates suggest that the size of the underground economy is
considerably larger than in the US (see Schneider, Buehn and Montenegro 2010).
Summing up, currency should be becoming technologically obsolete. However,
in no small part due to its association with the underground economy, it is not.
Arguments against phasing out paper currency
The arguments for eliminating paper currency are impressive, but there are
important points on the other side of the equation. The most straightforward is
seigniorage. The United States money supply increased by an average of roughly $30
7 It is possible that survey respondents underreport even those cash holdings that are for completely
legitimate purposes, for example by individuals who simply do not trust banks. I am implicitly
assuming this is the not nearly as important quantitatively as cash holdings used to avoid taxes or to
engage in illegal activities.
billion per year from 2002–2007, and averaged roughly $70 billion dollars per year in the
years immediately following the financial crisis. The magnitudes are similar in many
other large advanced countries. If a phase-out of paper currency were simply met by an
increased demand for electronic central bank reserves, there would of course be no
significant loss. However, precisely because paper currency is anonymous, replacing it
with non-anonymous electronic money would likely lead to a large shrinkage in demand,
and Treasuries would have to absorb the loss. Rogoff (1998) conjectures that this cost
might be fully compensated if a modest fraction of the underground economy is induced
to pay taxes, and there are also of course potential gains from reduced law-enforcement
costs. It is unclear how easily these activities could substitute into other transactions
media, but presumably this could be made difficult by restricting other potential
anonymous transactions vehicles.
Of course, if the government simply replaced paper currency with electronic
currency that it could somehow credibly make anonymous, there would be not
necessarily any long-run shrinkage in demand. The government would continue to garner
seigniorage revenues from the underground economy and the problem of the zero bound
on nominal interest rates would be effectively eliminated. That said, it is far from clear
that the government can credibly issue a fully anonymous electronic currency and even if
it could, anonymous electronic fiat money has all the drawbacks of an anonymous paper
currency in facilitating tax evasion and illegal activity.
There is also a question of how forcing a more rapid shift to cashless payments
would affect transactions costs. Retailers are typically forced to pay a pro-rata fee to
companies such as MasterCard and Visa for credit card services. But handling paper
currency also entails substantial costs to protect against theft and pilferage. Also, in
principle, the Federal government could allow individuals to maintain ATMs and debit
cards at the Federal Reserve, and arguably these could be serviced by private
subcontractors at lower cost than conventional bank services.
Another important argument for maintaining the status quo is that eliminating a
core symbol of the monetary regime could disrupt common social conventions for using
money, possibly in unexpected ways. For example, it could lead to a precipitous decline
in demand for debt and not just for fiat money. This need not happen. In his hugely
influential book on monetary policy, Woodford (2003) shows that central bank
stabilization policy can work perfectly well in the limit as money’s role in transactions
goes to zero. As long as social price-setting convention remains, and as long as the
central bank can manipulate banks’ reserves to set the price level, monetary stabilization
policy can still operate with full force. However, one must be careful that just because a
similar equilibrium can obtain with or without a significant transactions role for money, it
does not necessarily mean that private agents will focus on the same equilibrium as they
would when there exists paper currency. Yes, the government can help coordinate
expectations by insisting that taxes are paid in the electronic fiat currency, and that all
state contracts be denominated in this currency. But it is important to acknowledge that
there is a least an outside risk that if the government is too abrupt is abandoning a
century-old social convention, it will destabilize inflation expectations, introduce a risk
premium into bond pricing, and generally induce unexpected macroeconomic
instabilities.
There is also a potential risk to central bank independence. Even if eliminating
currency is at least revenue neutral for the government as a whole, the central bank is the
one that will lose seigniorage revenue. The Treasury is the one that will correspondingly
gain through higher tax revenues and lower law-enforcement costs. Under longstanding
institutional relationships, the ability to self-finance has put central banks in a privileged
position. Although governments typically maintain oversight of central bank budgets, the
fact that the central bank nominally appears to be a “profit center” considerably
strengthens its hand in maintaining operational independence. In recent years,
quantitative easing has been a massive money maker, but this is not the normal state of
affairs when currency provision is a key source of revenue.
Another argument for maintaining paper currency is that it pays to have a
diversity of technologies and not to become overly dependent on an electronic grid that
may one day turn out to be very vulnerable. Paper currency diversifies the transactions
system and hardens it against cyber attack, EMP blasts, etc. This argument, however,
seems increasingly less relevant because economies are so totally exposed to these
problems anyway. With paper currency being so marginalized already in the legal
economy in many countries, it is hard to see how it could be brought back quickly,
particularly if ATM machines were compromised at the same time as other electronic
systems.8
A different type of argument against eliminating currency relates to civil liberties.
In a world where society’s mores and customs evolve, it is important to tolerate
experimentation at the fringes. This is potentially a very important argument, though the
8 It is true that nearly all disaster‐preparedness instructions recommend holding cash, though unless
individuals are following this advice, there would still need to be a mechanism for distributing
currency after a catastrophe.
problem might be mitigated if controls are placed on the government’s use of information
(as is done say with tax information), and the problem might also be ameliorated if small
bills continue to circulate.9
Last but not least, if any country attempts to unilaterally reduce the use of its
currency, there is a risk that another country’s currency would be used within domestic
borders. Even if that risk is not great for a country like the United States, there is still the
loss of revenue from foreign users of currency (many of whom may be engaged in
underground or illegal activities within their own borders, even if not within US
borders).10 Thus, any attempt to eliminate large-denomination currency would ideally be
taken up in a treaty that included at the very least the major global currencies.
Conclusions
Paper currency came into prominent worldwide use at the time of World War I,
and has played a major role in shaping the global history of the last 100 years. Despite
huge and ongoing technological advances in electronic transactions technologies, it has
remained surprisingly durable, even if its major uses seem to be buried in the world
underground and illegal economy. With many central banks now near or at the zero
interest rate bound, there are increasingly strong arguments for exploring how it might be
phased out of use. True, there are many arguments for not disturbing the status quo,
9 I am implicitly assuming that if only small bills remain in circulation, the central bank would still
have the practical capacity to lower interest rates to significantly more negative levels than if large
bills continue to circulate, since hoarding costs are much greater for any large sum.
10 Obviously, some foreign use of dollar and euro currency is beneficial to the local economies, even if
a significant share goes to facilitating illegal and underground activities. Thus, some countries may
consider it detrimental to their interests to see phasing out of dollar and euro paper currency.
However, in an era where inflation rates in most countries have fallen radically over the past two
decades (making local currencies more attractive), the benefits of being able to use dollar and euro
paper currency in the legal economy has presumably been falling, and will continue to do so.
ranging from the importance of seigniorage revenues to civil liberties arguments. Given
relentless technological advance, embodied in everything from mobile banking to
crytocurrencies, we may already live in the twilight of the paper currency era anyway,
Nevertheless, given the role of paper currency (especially large-denomination notes) in
facilitating tax evasion and illegal activity, and given the persistent and perhaps recurring
problem of the zero bound on nominal interest rates, it is appropriate to consider the costs
and benefits to a more proactive strategy for phasing out the use of paper currency.
References
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Banknotes Issued in Germany.” Deutsche Bundesbank Monthly Report (January).
Blanchard, Olivier, Giovanni Dell’Ariccia and Paolo Mauro. 2010. “Rethinking
Macroeconomic Policy.” IMF Position Note, SPN/10/03 (February 12).
Buiter, Willem H. 2009. “Negative Nominal Interest Rates: Three Ways to Overcome the
Zero Lower Bound.” NBER Working Paper 15118 (June).
Buiter, Willem H. and Nikolaos Panigirtzoglou. 2003. “Overcoming the Zero Bound on
Nominal Interest Rates with Negative Interest on Currency: Gesell’s Solution.”
Economic Journal 113, no. 490 (October): 723–746.
European Central Bank. 2011. “The Use of Euro Banknotes – Results of Two Surveys
among Households and Firms,” ECB Monthly Bulletin (April): 79–90.
Feige, Edgar L. 2012a. “The Myth of the “Cashless Society”: How much of America’s
currency is overseas?” University Library of Munich, MPRA paper 42169.
Feige, Edgar L. 2012b. “New Estimates of U.S. Currency Abroad, the Domestic Money
Supply and the Unreported Economy.” Crime, Law and Social Change 57, no. 3:
239–263 .
Fischer, B., P. Kőhler and F. Seitz. 2004. “The Demand for Euro Currencies, Past,
Present and Future,” ECB Working Paper Series 330 (April).
Gesell, Silvio. 1916. Die Natuerliche Wirtschaftsordnung. Rudolf Zitzmann Verlag.
Available in English as The Natural Economic Order. Peter Owen Ltd., London,
1958.
Hall, Robert E. 1983. “Optimal Fiduciary Monetary Systems.” Journal of Monetary
Economics 12, no. 1: 33–50.
Hall, Robert E. 2002. “Controlling the Price Level.” Contributions to Macroeconomics 2,
no. 1: Article 5.
Hall, Robert E. 2013. “The Routes into and out of the Zero Lower Bound.” Paper
presented at the Kansas City Federal Reserve Economic Policy Symposium on
Global Dimensions of Unconventional Monetary Policy. Jackson Hole, Wyoming
(August 22–24).
Internal Revenue Service. 2012. “IRS Releases 2006 Tax Gap Estimates.” FS-2012-6:
http://www.irs.gov/uac/IRS-Releases-2006-Tax-Gap-Estimates (January).
Internal Revenue Service. 2012. “IRS Releases New Tax Gap Estimates; Compliance
Rates Remain Statistically Unchanged from Previous Study.” IR-2012-4:
http://www.irs.gov/uac/IRS-Releases-New-Tax-Gap-Estimates;-ComplianceRates-Remain-Statistically-Unchanged-From-Previous-Study (January 6).
Judson, Ruth. 2012. “Crisis and Calm: Demand for U.S. Currency at Home and Abroad
from the Fall of the Berlin Wall to 2011.” International Finance Discussion Paper
2012-1058, Board of Governors of the Federal Reserve System. Washington, DC
(November).
Mankiw, N. Gregory. 2009. “It May Be Time for the Fed to Go Negative.” New York
Times (April 18).
Kiyotaki, Nobuhiro and Randall Wright. 1989. “On Money as a Medium of Exchange.”
The Journal of Political Economy 87, no. 4 (August): 927–954.
Porter, Richard D. and Ruth Judson. 1996. “The Location of US Currency: How Much Is
Abroad?” Federal Reserve Bulletin (October).
Reinhart, Carmen M, and Kenneth S Rogoff. 2014. “Recovery from Financial Crises:
Evidence from 100 Episodes,” forthcoming American Economic Association
Papers and Proceedings (May).
Rogoff, Kenneth S. 1998. “Foreign and Underground Demand for Euro Notes: Blessing
or Curse?” Economic Policy 26 (April): 263–303.
Rogoff, Kenneth S. 2002. “The Surprising Popularity of Paper Currency.” Finance and
Development 39, no. 1: (March).
Schneider, Friedrich, Andreas Buehn and Claudio E. Montenegro. 2010. “New Estimates
for the Shadow Economies all over the World.” International Economic Journal
24 (December): 443–461.
Treasury Inspector General for Tax Administration. 2013. “The Internal Revenue Service
Needs to Improve the Comprehensiveness, Accuracy, Reliability, and Timeliness
of the Tax Gap Estimate.” Reference Number: 2013-IE-R008 (August 21).
Wang, Zhu and Alexander L. Wolman. 2014. “Payment Choice and the Future of
Currency: Insights from Two Billion Retail Transactions.” Federal Reserve Bank
of Richmond Working Paper No. 14-09 (April).
Woodford, Michael. 2003. Interest and Prices; Foundations of a Theory of Monetary
Policy. Princeton and Oxford: Princeton University Press.
Table 1
EUROPE
Currency in circulation – February 20, 2014
Denomination
Value (in thousands of euros)
Value (% of total currency)
Value (% of 2013 GDP)
€5
€ 8,028,790.8
0.838%
0.084%
€ 10
€ 20,115,075.4
2.100%
0.210%
€ 20
€ 57,254,121.0
5.978%
0.598%
€ 50
€ 335,791,854.3
35.063%
3.507%
€ 100
€ 183,322,233.0
19.142%
1.915%
€ 200
€ 39,428,190.4
4.117%
0.412%
€ 500
€ 289,720,996.0
30.252%
3.026%
Total (banknotes)
€ 933,661,260.8
97.491%
9.752%
All coins
€ 24,029,083.2
2.509%
0.251%
Total (incl. coins)
€ 957,690,344.0
100%
10.003%
Sources: http://www.ecb.europa.eu/stats/euro/circulation/html/index.en.html and
http://sdw.ecb.europa.eu/browseSelection.do?DATASET=0&sfl1=3&sfl2=4&REF_AREA=308&sfl3=4&BKN_ITEM=NC10&node=
5274891
Denomination
HK$10
HK$20
HK$50
HK$100
HK$500
HK$1,000
Total (banknotes)
All coins
Total (incl. coins)
HONG KONG
Currency in circulation – end 2012
Value (in billions of HKD)
Value (% of total currency)
HK$2.92
0.967%
HK$11.38
3.773%
2.322%
HK$7.00
HK$27.13
8.998%
HK$74.09
24.574%
HK$169.19
56.115%
HK$291.70
96.750%
3.250%
HK$9.80
HK$301.50
100%
Value (% of 2012 GDP)
0.143%
0.558%
0.344%
1.332%
3.637%
8.305%
14.319%
0.481%
14.800%
Source: http://www.hkma.gov.hk/media/eng/publication‐and‐research/annual‐report/2012/11_Monetary_Stability.pdf (page 50)
Table 1 continued
Denomination
¥500
¥1,000
¥2,000
¥5,000
¥10,000
Total (banknotes)
All coins
Total (incl. coins)
JAPAN
Currency in circulation – February 2014
Value (in 100 millions of yen)
Value (% of total currency)
¥1,066
0.118%
¥38,036
4.193%
¥1,995
0.220%
¥29,595
3.262%
¥790,196
87.101%
¥861,335
94.942%
¥45,884
5.058%
¥907,220
100%
Value (% of 2013 GDP)
0.022%
0.795%
0.042%
0.619%
16.519%
18.006%
0.959%
18.965%
Source: http://www.stat-search.boj.or.jp/index_en.html
UNITED STATES
Currency in circulation – December 31, 2013
Denomination
Value (in billions of dollars)
Value (% of total currency)
Value (% of 2013 GDP)
$1
$10.6
0.885%
0.063%
$2
$2.1
0.175%
0.013%
$5
$12.7
1.060%
0.076%
$10
$18.5
1.544%
0.110%
$20
$155.0
12.935%
0.923%
$50
$74.5
6.217%
0.443%
$100
$924.7
77.168%
5.504%
$500 to $10,000
$0.3
0.025%
0.002%
Total
$1,198.3
100%
7.133%
Source: http://www.federalreserve.gov/paymentsystems/coin_currcircvalue.htm
9/12/2016
The Case Against Cash by Kenneth Rogoff ­ Project Syndicate
ECONOMICS
KENNETH ROGOFF
Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and
recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief
economist of the International Monetary Fund from 2001 to 2003. The co‐author of This
Time is Different: Eight Centuries of Financial Folly, his new book, The Curse of Cash, will
be released in August 2016.
SEP 5, 2016
The Case Against Cash
CAMBRIDGE – The world is awash in paper currency, with major country central banks
pumping out hundreds of billions of dollars’ worth each year, mainly in very large
denomination notes such as the $100 bill. The $100 bill accounts for almost 80% of the US’s
stunning $4,200 per capita cash supply. The ¥10,000 note (about $100) accounts for
roughly 90% of all Japan’s currency, where per capita cash holdings are almost $7,000. And,
as I have been arguing for two decades, all this cash is facilitating growth mainly in the
underground economy, not the legal one.
I am not advocating a cashless society, which will be neither feasible nor desirable anytime
soon. But a less‐cash society would be a fairer and safer place.
With the growth of debit cards, electronic transfers, and mobile payments, the use of cash
has long been declining in the legal economy, especially for medium and large‐size
transactions. Central bank surveys show that only a small percentage of large‐
denomination notes are being held and used by ordinary people or businesses.
Cash facilitates crime because it is anonymous, and big bills are especially problematic
because they are so easy to carry and conceal. A million dollars in $100 notes Ἃḋits into a
briefcase, a million dollars in €500 notes (each worth about $565) Ἃḋits into a purse.
https://www.project­syndicate.org/print/dangers­of­paper­currency­by­kenneth­rogoff­2016­09
1/3
9/12/2016
The Case Against Cash by Kenneth Rogoff ­ Project Syndicate
Sure, there are plenty of ways to bribe ofἋḋicials, engage in Ἃḋinancial crime, and evade taxes
without paper currency. But most involve very high transaction costs (for example, uncut
diamonds), or risk of detection (say, bank transfers or credit card payments).
Yes, new‐age crypto‐currencies such as Bitcoin, if not completely invulnerable to detection,
are almost so. But their value sharply Ἃḋluctuates, and governments have many tools with
which they can restrict their use – for example, by preventing them from being tendered at
banks or retail stores. Cash is unique in its liquidity and near‐universal acceptance.
The costs of tax evasion alone are staggering, perhaps $700 billion per year in the United
States (including federal, state, and local taxes), and even more in high‐tax Europe. Crime
and corruption, though difἋḋicult to quantify, almost surely generate even greater costs.
Think not just of illegal drugs and racketeering, but also of human trafἋḋicking, terrorism,
and extortion.
Moreover, cash payments by employers to undocumented workers are a principal driver of
illegal immigration. Scaling back the use of cash is a far more humane way to limit
immigration than building barbed‐wire fences.
If governments were not so drunk from the proἋḋits they make by printing paper currency,
they might wake up to the costs. There has been a little movement of late. The European
Central Bank recently announced that it will phase out its €500 mega‐note. Still, this long
overdue change was implemented against enormous resistance from cash‐loving Germany
and Austria. Yet even in northern Europe, reported per capita holdings of currency are still
quite modest relative to the massive outstanding supply in the eurozone as a whole (over
€3,000 per capita).
Southern European governments, desperate to raise tax revenue, have been taking matters
into their own hands, even though they do not control note issuance. For example, Greece
and Italy have been trying to discourage cash use by capping retail cash purchases (at
€1,500 and €1,000, respectively).
Obviously, cash remains important for small everyday transactions, and for protecting
privacy. Northern European central bankers who favor the status quo like to quote Russian
novelist Fyodor Dostoevsky: “Money is coined liberty.” Of course, Dostoevsky was referring
to life in a mid‐nineteenth century czarist prison, not a modern liberal state. Still, the
northern Europeans have a point. The question is whether the current system has the
balance right. I would argue that it clearly does not.
https://www.project­syndicate.org/print/dangers­of­paper­currency­by­kenneth­rogoff­2016­09
2/3
9/12/2016
The Case Against Cash by Kenneth Rogoff ­ Project Syndicate
A plan for reining in paper currency should be guided by three principles. First, it is
important to allow ordinary citizens to continue using cash for convenience and to make
reasonable‐size anonymous purchases, while undermining the business models of those
engaged in large, repeated anonymous transactions on a wholesale level. Second, any plan
should move very gradually (think a decade or two), to allow adaptations and mid‐course
corrections as unexpected problems arise. And, third, reforms must be sensitive to the
needs of low‐income households, especially those that are unbanked.
In my new book, The Curse of Cash, I offer a plan that involves very gradually phasing out
large notes, while leaving small notes ($10 and below) in circulation indeἋḋinitely. The plan
provides for Ἃḋinancial inclusion by offering low‐income households free debit accounts,
which could also be used to make government transfer payments. This last step is one that
some countries, such as Denmark and Sweden, have already taken.
Scaling back paper currency would hardly end crime and tax evasion; but it would force the
underground economy to employ riskier and less liquid payment devices. Cash may seem
like a small, unimportant thing in today’s high‐tech Ἃḋinancial world, but the beneἋḋits of
phasing out most paper currency are a lot larger than you might think.
http://prosyn.org/o3XfSqO
© 1995‐2016 Project Syndicate
https://www.project­syndicate.org/print/dangers­of­paper­currency­by­kenneth­rogoff­2016­09
3/3
9/12/2016
The Case Against Cash by Kenneth Rogoff ­ Project Syndicate
ECONOMICS
KENNETH ROGOFF
Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and
recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief
economist of the International Monetary Fund from 2001 to 2003. The co‐author of This
Time is Different: Eight Centuries of Financial Folly, his new book, The Curse of Cash, will
be released in August 2016.
SEP 5, 2016
The Case Against Cash
CAMBRIDGE – The world is awash in paper currency, with major country central banks
pumping out hundreds of billions of dollars’ worth each year, mainly in very large
denomination notes such as the $100 bill. The $100 bill accounts for almost 80% of the US’s
stunning $4,200 per capita cash supply. The ¥10,000 note (about $100) accounts for
roughly 90% of all Japan’s currency, where per capita cash holdings are almost $7,000. And,
as I have been arguing for two decades, all this cash is facilitating growth mainly in the
underground economy, not the legal one.
I am not advocating a cashless society, which will be neither feasible nor desirable anytime
soon. But a less‐cash society would be a fairer and safer place.
With the growth of debit cards, electronic transfers, and mobile payments, the use of cash
has long been declining in the legal economy, especially for medium and large‐size
transactions. Central bank surveys show that only a small percentage of large‐
denomination notes are being held and used by ordinary people or businesses.
Cash facilitates crime because it is anonymous, and big bills are especially problematic
because they are so easy to carry and conceal. A million dollars in $100 notes Ἃḋits into a
briefcase, a million dollars in €500 notes (each worth about $565) Ἃḋits into a purse.
https://www.project­syndicate.org/print/dangers­of­paper­currency­by­kenneth­rogoff­2016­09
1/3
9/12/2016
The Case Against Cash by Kenneth Rogoff ­ Project Syndicate
Sure, there are plenty of ways to bribe ofἋḋicials, engage in Ἃḋinancial crime, and evade taxes
without paper currency. But most involve very high transaction costs (for example, uncut
diamonds), or risk of detection (say, bank transfers or credit card payments).
Yes, new‐age crypto‐currencies such as Bitcoin, if not completely invulnerable to detection,
are almost so. But their value sharply Ἃḋluctuates, and governments have many tools with
which they can restrict their use – for example, by preventing them from being tendered at
banks or retail stores. Cash is unique in its liquidity and near‐universal acceptance.
The costs of tax evasion alone are staggering, perhaps $700 billion per year in the United
States (including federal, state, and local taxes), and even more in high‐tax Europe. Crime
and corruption, though difἋḋicult to quantify, almost surely generate even greater costs.
Think not just of illegal drugs and racketeering, but also of human trafἋḋicking, terrorism,
and extortion.
Moreover, cash payments by employers to undocumented workers are a principal driver of
illegal immigration. Scaling back the use of cash is a far more humane way to limit
immigration than building barbed‐wire fences.
If governments were not so drunk from the proἋḋits they make by printing paper currency,
they might wake up to the costs. There has been a little movement of late. The European
Central Bank recently announced that it will phase out its €500 mega‐note. Still, this long
overdue change was implemented against enormous resistance from cash‐loving Germany
and Austria. Yet even in northern Europe, reported per capita holdings of currency are still
quite modest relative to the massive outstanding supply in the eurozone as a whole (over
€3,000 per capita).
Southern European governments, desperate to raise tax revenue, have been taking matters
into their own hands, even though they do not control note issuance. For example, Greece
and Italy have been trying to discourage cash use by capping retail cash purchases (at
€1,500 and €1,000, respectively).
Obviously, cash remains important for small everyday transactions, and for protecting
privacy. Northern European central bankers who favor the status quo like to quote Russian
novelist Fyodor Dostoevsky: “Money is coined liberty.” Of course, Dostoevsky was referring
to life in a mid‐nineteenth century czarist prison, not a modern liberal state. Still, the
northern Europeans have a point. The question is whether the current system has the
balance right. I would argue that it clearly does not.
https://www.project­syndicate.org/print/dangers­of­paper­currency­by­kenneth­rogoff­2016­09
2/3
9/12/2016
The Case Against Cash by Kenneth Rogoff ­ Project Syndicate
A plan for reining in paper currency should be guided by three principles. First, it is
important to allow ordinary citizens to continue using cash for convenience and to make
reasonable‐size anonymous purchases, while undermining the business models of those
engaged in large, repeated anonymous transactions on a wholesale level. Second, any plan
should move very gradually (think a decade or two), to allow adaptations and mid‐course
corrections as unexpected problems arise. And, third, reforms must be sensitive to the
needs of low‐income households, especially those that are unbanked.
In my new book, The Curse of Cash, I offer a plan that involves very gradually phasing out
large notes, while leaving small notes ($10 and below) in circulation indeἋḋinitely. The plan
provides for Ἃḋinancial inclusion by offering low‐income households free debit accounts,
which could also be used to make government transfer payments. This last step is one that
some countries, such as Denmark and Sweden, have already taken.
Scaling back paper currency would hardly end crime and tax evasion; but it would force the
underground economy to employ riskier and less liquid payment devices. Cash may seem
like a small, unimportant thing in today’s high‐tech Ἃḋinancial world, but the beneἋḋits of
phasing out most paper currency are a lot larger than you might think.
http://prosyn.org/o3XfSqO
© 1995‐2016 Project Syndicate
https://www.project­syndicate.org/print/dangers­of­paper­currency­by­kenneth­rogoff­2016­09
3/3

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