CASH is one of mankind’s greatest inventions; a vast improvement, one would imagine, on carting around sheep or bales of hay. Despite the proliferation of other forms of payment, cash retains qualities that alternative methods cannot match, including anonymity, instant clearing, universal acceptance and a relatively tech-free mechanism. It can be used even if the power grid goes down or the banks are all hacked. Yet a growing number of economists are now calling for cash to be phased out. Why?
In “The Curse of Cash”, published on August 16th, Kenneth Rogoff makes the case for gradually getting rid of most paper currency. It certainly has benefits, he admits, but these are outweighed by the costs associated with its murky side. Take anonymity. The same virtue that provides the ability to pay for a self-indulgent treat or a naughty service without its appearing on bank records or credit-card statements also allows criminals to fund their activities and tax-dodgers to avoid levies. The record $1.4 trillion circulating outside of banks in dollars alone, mostly in high-denomination bills, might suggest that every four-person American family has $13,600 in $100 bills stashed in a jam jar. That is unlikely. According to Mr Rogoff, the bulk of the rich world’s currency supply is used to facilitate tax evasion and illegal activities such as human trafficking and financing terrorism. A cashless world would also make monetary policy more effective, argue some, including Mr Rogoff, because savers would no longer be able to stuff cash under mattresses in case of negative rates. And as shopkeepers and businesses in relatively cash-light countries such as Sweden are discovering, there are other real benefits to preferring electronic payments over cash, including security, lower costs, hygiene and convenience, for both business and customer.