Kenneth Rogoff, Professor of Public Policy at Harvard University, postulates to get rid of cash. In his opinion, killing big bills would hamper organized crime and make negative interest more effective.
Kenneth Rogoff makes a provocative proposal. One of the most influential economists on the planet, he wants to phase out cash. «Paper currency lies at the heart of some of today’s most intractable public finance and monetary problems», he writes in his brand-new book «The Curse of Cash». In it, he highlights that today it’s mostly large scale criminal organizations that are still depending on cash to go after their business. Also, in a world without big bills negative interest rates would work much better, argues the professor at Harvard University. In an extensive interview, he’s also expressing severe concerns about the banking system in Europe and about the economic slowdown in China
Professor Rogoff, you are proposing to get rid of cash. Why?
I actually favor a less cash society over a cashless society. Currency has a lot of important uses which are not so readily replaced in the foreseeable future. The use of cash in the legal economy is very concentrated in small purchases where I guess it’s convenient. It’s also used in poor communities. But it’s different with big bills. Their importance for large legal and tax compliant transactions is rapidly diminishing. In the United States for example, the last careful survey found that cash was used and accounted for only about 14% of the value of all transactions. Now it has probably fallen closer to 12%. And in the Scandinavian countries cash usage is certainly under 5% of the value of transactions now.
So why do you argue for government intervention since the trend is already going towards a natural phase out of cash?
In most of the advanced countries cash is used and held by people who are engaged in crime and tax evasion. Also, cash plays a huge role in black labor and illegal immigration. If employers couldn’t pay workers off the books in cash it would basically hugely reduce illegal immigration, particularly in the United States. That’s why I say: Big bills are a curse. Of course, I don’t pretend that eliminating large bills is going to somehow change human nature and end tax evasion, crime and illegal immigration. But if we can reduce it even a few percent it’s worth doing. That’s sort of my basic argument. It’s a very simple and sane proposal – especially compared to Donald Trump’s proposal to build a wall against illegal immigration.
But if it’s so simple, why didn’t we get rid of cash a long time ago?
I have been working on this topic for more than twenty years. I wrote a paper already in 1998 that covers a lot of the issues. There are two important reasons for the slow progress. One certainly is that central banks and treasuries think that they’re making a lot of money with cash. But it’s penny-wise and pound-foolish to think that this is a money maker. True, cash is a form of interest free debt and if the government didn’t issue cash it would have to issue debt to pay for the same expenditures. Of course, with today’s low interest rates it’s really not very impressive because government debt is so cheap. But potentially some day it would be more. Also, what I argued already twenty years ago is that if you could cut tax evasion by 10% – and the IRS certainly suggests that’s likely – than you would already be more than covering all the lost revenues from printing money.
What kind of amounts are we talking about here?
There is very good data for the United States where tax evasion, counting all levels of government, is about $700 billion per year. The Internal Revenue Services has done very careful studies for many years and they find that a large amount of this is concentrated in small and medium businesses. Compared to that, the kind of tax evasion that’s been in the news a lot, about people putting money abroad in Switzerland and or in Luxembourg is actually relatively small. It’s much smaller than the tax evasion that occurs within the United States by people who just don’t report their income.
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