Ken Rogoff has an interesting NBER Working paper "Costs as well as Benefits to Phasing Out Paper Currency."
Ken would similar to acquire rid of newspaper currency inwards favor of all electronic transactions. I'm a large fan of low-cost electronic transactions using interest-paying electronic money. But I'm non ready to plow over upward cash.
Ken has ii basic points: The null bound, as well as taxation evasion / illegal economy.
Zero bound
Many economists would similar the Federal Reserve to live able to laid a negative involvement charge per unit of measurement target, as a trend to farther "stimulus."
The conventional answer is that this is impossible because of currency. As long as you--and to a greater extent than importantly, banks -- tin grip cash, which pays a null involvement rate, the Fed can't impose a negative involvement charge per unit of measurement on bonds. In reality, asset cash is expensive, fifty-fifty for banks, hence nosotros tin as well as exercise meet slightly negative involvement rates on occasion. But to a greater extent than than -0.5% or hence would live difficult to sustain.
This has led to a expose of creative proposals, which Ken summarizes
Let's acquire out aside the (dubious, inwards my view) claim that negative nominal involvement rates are the vital cure for our ailing economies, as well as precisely focus on the inquiry whether eliminating currency volition allow it.
So, quiz inquiry for your economical classes: Suppose nosotros conduct maintain substantially negative involvement rates -- -5% or -10%, say, as well as lasting a while. But at that spot is no currency. How else tin you lot ensure yourself a null riskless nominal return?
Here are the ones I tin yell upward of:
Now inwards each case, you lot mightiness say this tin live changed. The IRS could spend upward pre-payments for taxes, or accuse a negative involvement charge per unit of measurement or a penalization for pre-payment. Businesses similar a shot accuse penalties for belatedly payment, hence institutionally they could accuse penalties for early on payment.
But our legal as well as fiscal organisation deeply enshrines the correct to pay early. Imagine the string of courtroom cases inwards which consumers need their correct to pay rent, gas bills, etc. vs. landlords who won't allow them.
Politically, imagine the outrage at an endeavor yesteryear the Federal Government as well as Federal Reserve to enforce negative involvement rates -- to "take away people's money'' -- at a magnitude that matters -- 5% say, non five bp -- and to eliminate people's correct to grip cash to enforce that confiscation. You mightiness as good suggest to accept away their guns, aureate bars, as well as stocks of canned food.
So, bottom line, nosotros cannot conduct maintain strongly negative nominal rates without a legal revolution essentially negative-indexing the entire economic scheme as well as payment system, as well as upending centuries of police push clit giving you lot the correct to pay bills at seem upward value.
The null jump is non precisely cash.
"Illegal" transactions, regulations, as well as taxation evasion
Rogoff:
Though anonymity facilitates evasion of "good" taxes as well as necessary regulations, the powerfulness to transact anonymously is an of import security valve that protects our economic scheme as well as many others some the basis from a welter of "bad" taxes, laws, as well as overly intrusive regulations. How much of each nosotros conduct maintain now, as well as how desirable strict enforcement is depends on where you lot sit. I imagine opinions differ at Harvard vs. Cato or Mercatus.
Regulations may live to a greater extent than of import than taxes. Big companies as well as wealthy people who pay most of the taxes inwards the US don't conduct maintain to cheat; they precisely hire adept lawyers as well as lobbyists. Monitoring transactions is an first-class trend to enforce compliance amongst all sorts of regulations. And nosotros plausibly conduct maintain to a greater extent than bad regulations than (even) bad taxes.
In the U.S., eliminating cash would heavily affect the poor. The U.S. has xi meg undocumented immigrants, most working as well as transacting inwards cash. It is probable that many readers of this postal service conduct maintain violated the extensive Federal as well as State project laws or immigration laws, inwards their hiring of family help, as well as able to exercise hence yesteryear transacting inwards cash. Sub-minimum wage jobs would disappear without currency, as would many jobs available to ex-convicts as well as others facing legal restrictions on their employment. What footling entrepreneurship as well as activity exists inwards many piteous parts of inner cities survives on cash, yesteryear beingness able to evade non precisely taxes but onerous local regulations, occupational licensing restrictions, zoning restrictions, project laws, as well as hence forth. Are you lot buying lights windows or toilets that violate zoning unloose energy or H2O laws? Not whatever more, you're not.
Influenza A virus subtype H5N1 lot of "tax evasion" using currency consists of quite piteous people evading the astronomical marginal taxation rates implicit inwards social programs. People on social security disability, as well as medicaid, say, who would lose lots of benefits if they reported income, alternative upward a lot of spare money working for cash. Do nosotros actually desire them to obey all the rules strictly -- non operate at all? Should the spotter TV all hateful solar daytime long?
I wrote almost the pernicious consequences of e-verify here. The basis inwards which the Federal Government must pre-approve every job strikes me as a nightmare. The basis inwards which the Federal Government is monitoring every transaction betwixt people to enforce who it thinks you lot tin as well as can't hire is a worse nightmare.
In other parts of the world, small-scale businesses as well as project markets only component at all yesteryear avoiding laws, taxes, or regulations. Estimates for Europe pose the "shadow economy" at to the lowest degree 20% of GDP, as well as a larger fraction of job peculiarly for immature people. Values inwards the residue of the basis are probable larger. It's non obvious that eliminating cash as well as cash transactions inwards Europe would heighten taxation revenue, rather than merely lowering actual gross domestic product as well as job yesteryear 20% or more.
There is almost $1.3 trillion currency outstanding, to a greater extent than than $3,000 per US citizen. 3/4 of it is $100 bills. Most is held abroad. You acquire the motion-picture present of who holds dollars as well as why. US policy makers my yell upward all our taxes, rules as well as regulations are benificent, but nosotros don't yell upward that of the residue of the world. Do nosotros actually desire to acquire rid of this security valve for Russia, Argentina, Venezuela, Cuba, the Middle East, as well as hence forth?
If the U.S. were willing to allow anonymous electronic transactions, as well as hence nosotros could acquire rid of cash. But nosotros already conduct maintain lost a groovy bargain of the powerfulness to transact anonymously, as well as the electrical flow technological as well as policy tendency is alone inwards the other direction. One used to live able to accept to a greater extent than than $10,000 out of banks at will; similar a shot such a withdrawal must live reported. Smaller cash transactions are voluntarily reported yesteryear banks nether fearfulness of "know your customer" as well as anti-terrorism regulation. Remember the glorious ending of the Shawshank Redemption, where the hero takes huge piles of cash out of a bunch of banks as well as heads to the Mexican border? Forget it. And it's already beingness used politically: Justice is using know-your-customer rules deny legal but unfavored industries such as marijuana dispensaries as well as payday lenders access to banking.
Treasury abolished bearer (anonymous) bonds inwards 1983, amongst the switch to electronic book-entry holdings. Anonymous Swiss banking concern accounts are a thing of the past. The SEC, IRS, as well as CFTC are none also happy almost bitcoin.
Liberty
More deeply, a basis inwards which the Federal Government tin discover every unmarried transaction made yesteryear every unmarried somebody as well as corporation, as well as thereby reconstruct the size as well as composition of every person's wealth, strikes me as an Orwellian nightmare. Among the rights to privacy, the powerfulness to brand an anonymous transaction, already severely hampered, cannot disappear totally.
Imagine the repercussions for political liberty if the Federal Government has a tape of every unmarried transaction. If a candidate for political business office 1 time bought a racy magazine, that tape is inwards regime files. And 1 Lois Lerner or Edward Snowden away from a twitter feed. If a prominent political voice, or fifty-fifty an annoying economic science blogger, had a purchase somewhere inwards his or her history they did non desire made public, or that violated some nitwit police push clit or regulation, they could speedily live silenced. Imagine what J. Edgar Hoover could conduct maintain done to the civil rights as well as anti-war movements amongst the powerfulness to meet every transaction inwards the country.
Ken acknowledges this point:
"Controls are placed." Absolutely nosotros involve controls, as well as nosotros involve them similar a shot fifty-fifty amongst currency. Let's add together some subjects as well as active verbs here: Congress should transcend clear stringent laws, amongst strong judicial oversight as well as as strong penalties, on the limits of the government's collection as well as purpose of information on fiscal ownership as well as transactions.
Substitutes as well as a chilling ending:
Influenza A virus subtype H5N1 global treaty banning currency as well as anonymous transactions...I tin meet the pitchforks now.
To live clear, this is a adept essay, as well as Ken brings upward all the of import points. My disagreement hither is precisely sentence on the importance of some considerations -- "good" taxation as well as regulatory evasion, "good" anonymity, the importance of anonymity for political liberty -- relative to others -- seignorage (trivial inwards my view, of import inwards Ken's) for example.
Ken would similar to acquire rid of newspaper currency inwards favor of all electronic transactions. I'm a large fan of low-cost electronic transactions using interest-paying electronic money. But I'm non ready to plow over upward cash.
Ken has ii basic points: The null bound, as well as taxation evasion / illegal economy.
Zero bound
Many economists would similar the Federal Reserve to live able to laid a negative involvement charge per unit of measurement target, as a trend to farther "stimulus."
The conventional answer is that this is impossible because of currency. As long as you--and to a greater extent than importantly, banks -- tin grip cash, which pays a null involvement rate, the Fed can't impose a negative involvement charge per unit of measurement on bonds. In reality, asset cash is expensive, fifty-fifty for banks, hence nosotros tin as well as exercise meet slightly negative involvement rates on occasion. But to a greater extent than than -0.5% or hence would live difficult to sustain.
This has led to a expose of creative proposals, which Ken summarizes
Willem Buiter.. has discussed ... devices for paying negative involvement rates on currency... stamp taxes... (currency would remain valid only if it were regularly stamped to reverberate taxation payment). ... Mankiw (2009) points out that the fundamental banking concern could effectively taxation currency yesteryear asset lotteries based on series numbers, as well as making the “winners” worthless.Ken goes on to the ultimate version of this idea: acquire rid of cash all together as well as displace alone to electronic transactions.
Let's acquire out aside the (dubious, inwards my view) claim that negative nominal involvement rates are the vital cure for our ailing economies, as well as precisely focus on the inquiry whether eliminating currency volition allow it.
So, quiz inquiry for your economical classes: Suppose nosotros conduct maintain substantially negative involvement rates -- -5% or -10%, say, as well as lasting a while. But at that spot is no currency. How else tin you lot ensure yourself a null riskless nominal return?
Here are the ones I tin yell upward of:
- Prepay taxes. The IRS allows you lot to pay as much as you lot desire now, against futurity taxes.
- Gift cards. At a negative 10% rate, I tin invest inwards almost $10,000 of Peets' java cards alone. There is similar a shot patently a hot secondary marketplace inwards gift cards, hence large values as well as resale could accept off.
- Likewise, stored value cards, underground cards, stamps. Subway cards are anonymous hence you lot could resell them.
- Prepay bills. Send $10,000 to the gas company, electrical company, telephone company.
- Prepay rent or mortgage payments.
- Businesses: prepay suppliers as well as leases. Prepay wages, or at to the lowest degree pre-fund benefits that workers must remain employed to earn.
Now inwards each case, you lot mightiness say this tin live changed. The IRS could spend upward pre-payments for taxes, or accuse a negative involvement charge per unit of measurement or a penalization for pre-payment. Businesses similar a shot accuse penalties for belatedly payment, hence institutionally they could accuse penalties for early on payment.
But our legal as well as fiscal organisation deeply enshrines the correct to pay early. Imagine the string of courtroom cases inwards which consumers need their correct to pay rent, gas bills, etc. vs. landlords who won't allow them.
Politically, imagine the outrage at an endeavor yesteryear the Federal Government as well as Federal Reserve to enforce negative involvement rates -- to "take away people's money'' -- at a magnitude that matters -- 5% say, non five bp -- and to eliminate people's correct to grip cash to enforce that confiscation. You mightiness as good suggest to accept away their guns, aureate bars, as well as stocks of canned food.
So, bottom line, nosotros cannot conduct maintain strongly negative nominal rates without a legal revolution essentially negative-indexing the entire economic scheme as well as payment system, as well as upending centuries of police push clit giving you lot the correct to pay bills at seem upward value.
The null jump is non precisely cash.
"Illegal" transactions, regulations, as well as taxation evasion
Rogoff:
Paper currency facilitates making transactions anonymous, helping conceal activities from the regime inwards a trend that mightiness [!] assist agents avoid laws, regulations as well as taxes. This is a large divergence from most forms of electronic money that, inwards principle, tin live traced yesteryear the governmentIndeed. The fundamental feature of currency is anonymity of its possession as well as of the transactions it facilitates. Though transactions aren't that closely monitored now, the calculator revolution is making it to a greater extent than as well as to a greater extent than possible. And Ken is explicitly proposing fifty-fifty more: that the IRS as well as regulatory agencies volition actively purpose their powerfulness to monitor electronic transactions to enforce "laws, regulations as well as taxes."
Though anonymity facilitates evasion of "good" taxes as well as necessary regulations, the powerfulness to transact anonymously is an of import security valve that protects our economic scheme as well as many others some the basis from a welter of "bad" taxes, laws, as well as overly intrusive regulations. How much of each nosotros conduct maintain now, as well as how desirable strict enforcement is depends on where you lot sit. I imagine opinions differ at Harvard vs. Cato or Mercatus.
Regulations may live to a greater extent than of import than taxes. Big companies as well as wealthy people who pay most of the taxes inwards the US don't conduct maintain to cheat; they precisely hire adept lawyers as well as lobbyists. Monitoring transactions is an first-class trend to enforce compliance amongst all sorts of regulations. And nosotros plausibly conduct maintain to a greater extent than bad regulations than (even) bad taxes.
In the U.S., eliminating cash would heavily affect the poor. The U.S. has xi meg undocumented immigrants, most working as well as transacting inwards cash. It is probable that many readers of this postal service conduct maintain violated the extensive Federal as well as State project laws or immigration laws, inwards their hiring of family help, as well as able to exercise hence yesteryear transacting inwards cash. Sub-minimum wage jobs would disappear without currency, as would many jobs available to ex-convicts as well as others facing legal restrictions on their employment. What footling entrepreneurship as well as activity exists inwards many piteous parts of inner cities survives on cash, yesteryear beingness able to evade non precisely taxes but onerous local regulations, occupational licensing restrictions, zoning restrictions, project laws, as well as hence forth. Are you lot buying lights windows or toilets that violate zoning unloose energy or H2O laws? Not whatever more, you're not.
Influenza A virus subtype H5N1 lot of "tax evasion" using currency consists of quite piteous people evading the astronomical marginal taxation rates implicit inwards social programs. People on social security disability, as well as medicaid, say, who would lose lots of benefits if they reported income, alternative upward a lot of spare money working for cash. Do nosotros actually desire them to obey all the rules strictly -- non operate at all? Should the spotter TV all hateful solar daytime long?
I wrote almost the pernicious consequences of e-verify here. The basis inwards which the Federal Government must pre-approve every job strikes me as a nightmare. The basis inwards which the Federal Government is monitoring every transaction betwixt people to enforce who it thinks you lot tin as well as can't hire is a worse nightmare.
In other parts of the world, small-scale businesses as well as project markets only component at all yesteryear avoiding laws, taxes, or regulations. Estimates for Europe pose the "shadow economy" at to the lowest degree 20% of GDP, as well as a larger fraction of job peculiarly for immature people. Values inwards the residue of the basis are probable larger. It's non obvious that eliminating cash as well as cash transactions inwards Europe would heighten taxation revenue, rather than merely lowering actual gross domestic product as well as job yesteryear 20% or more.
There is almost $1.3 trillion currency outstanding, to a greater extent than than $3,000 per US citizen. 3/4 of it is $100 bills. Most is held abroad. You acquire the motion-picture present of who holds dollars as well as why. US policy makers my yell upward all our taxes, rules as well as regulations are benificent, but nosotros don't yell upward that of the residue of the world. Do nosotros actually desire to acquire rid of this security valve for Russia, Argentina, Venezuela, Cuba, the Middle East, as well as hence forth?
If the U.S. were willing to allow anonymous electronic transactions, as well as hence nosotros could acquire rid of cash. But nosotros already conduct maintain lost a groovy bargain of the powerfulness to transact anonymously, as well as the electrical flow technological as well as policy tendency is alone inwards the other direction. One used to live able to accept to a greater extent than than $10,000 out of banks at will; similar a shot such a withdrawal must live reported. Smaller cash transactions are voluntarily reported yesteryear banks nether fearfulness of "know your customer" as well as anti-terrorism regulation. Remember the glorious ending of the Shawshank Redemption, where the hero takes huge piles of cash out of a bunch of banks as well as heads to the Mexican border? Forget it. And it's already beingness used politically: Justice is using know-your-customer rules deny legal but unfavored industries such as marijuana dispensaries as well as payday lenders access to banking.
Treasury abolished bearer (anonymous) bonds inwards 1983, amongst the switch to electronic book-entry holdings. Anonymous Swiss banking concern accounts are a thing of the past. The SEC, IRS, as well as CFTC are none also happy almost bitcoin.
Liberty
More deeply, a basis inwards which the Federal Government tin discover every unmarried transaction made yesteryear every unmarried somebody as well as corporation, as well as thereby reconstruct the size as well as composition of every person's wealth, strikes me as an Orwellian nightmare. Among the rights to privacy, the powerfulness to brand an anonymous transaction, already severely hampered, cannot disappear totally.
Imagine the repercussions for political liberty if the Federal Government has a tape of every unmarried transaction. If a candidate for political business office 1 time bought a racy magazine, that tape is inwards regime files. And 1 Lois Lerner or Edward Snowden away from a twitter feed. If a prominent political voice, or fifty-fifty an annoying economic science blogger, had a purchase somewhere inwards his or her history they did non desire made public, or that violated some nitwit police push clit or regulation, they could speedily live silenced. Imagine what J. Edgar Hoover could conduct maintain done to the civil rights as well as anti-war movements amongst the powerfulness to meet every transaction inwards the country.
Ken acknowledges this point:
Influenza A virus subtype H5N1 unlike type of declaration against eliminating currency relates to civil liberties. In a basis where society’s mores as well as customs evolve, it is of import to tolerate experimentation at the fringes. This is potentially a real of import argument, though the job mightiness live mitigated if controls are placed on the government’s purpose of information (as is done say amongst taxation information), as well as the job mightiness also live ameliorated if small-scale bills proceed to circulate"Experimentation at the fringes" agency anyone who bought booze inwards prohibition, or pot inwards the final 50 years, or sought world office. Campaign finance police push clit is already a political cesspool. Imagine what it volition expect similar when a rogue prosecutor tin meet every transaction. I'm non certain that's a fringe.
"Controls are placed." Absolutely nosotros involve controls, as well as nosotros involve them similar a shot fifty-fifty amongst currency. Let's add together some subjects as well as active verbs here: Congress should transcend clear stringent laws, amongst strong judicial oversight as well as as strong penalties, on the limits of the government's collection as well as purpose of information on fiscal ownership as well as transactions.
Substitutes as well as a chilling ending:
Last but non least, if whatever province attempts to unilaterally cut the purpose of its currency, at that spot is a run a jeopardy that some other country’s currency would live used inside domestic borders. Even if that run a jeopardy is non groovy for a province similar the United States, at that spot is all the same the loss of revenue from unusual users of currency (many of whom may live engaged inwards cloak-and-dagger or illegal activities inside their ain borders, fifty-fifty if non inside US borders). Thus, whatever endeavor to eliminate large-denomination currency would ideally live taken upward inwards a treaty that included at the real to the lowest degree the major global currenciesVenezuela as well as Argentine Republic acquire along on dollars. Don't live hence certain the run a jeopardy is non groovy for the US. Bitcoin, though real imperfect inwards a lot of dimensions, shows the strong need for anonymous transactions as well as wealth holding. We could larn to purpose Euros pretty fast.
Influenza A virus subtype H5N1 global treaty banning currency as well as anonymous transactions...I tin meet the pitchforks now.
To live clear, this is a adept essay, as well as Ken brings upward all the of import points. My disagreement hither is precisely sentence on the importance of some considerations -- "good" taxation as well as regulatory evasion, "good" anonymity, the importance of anonymity for political liberty -- relative to others -- seignorage (trivial inwards my view, of import inwards Ken's) for example.
