Harvard Public Policy professor Kenneth Rogoff might be a world-renowned economist, but he’s dead wrong on banning cash. Or, as he prefers, getting rid of ‘big bills’ like $50s and $100s. Even if his opinions on cash prevail, though, there is one form of cash he can never ban: Bitcoin.
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Rogoff: ‘Big Bills Are a Curse’
A pioneer of the “cashless society” phenomenon, Rogoff has researched and written about phasing out cash transactions for over twenty years. You’d think that after two decades of work he would have very scientific and nuanced arguments for phasing out cash. Nope.
After all the research and writing, Rogoff’s best reasons for phasing out cash boil down to two topics: crime and illegal immigration.
Rogoff argued that “in most advanced countries cash is used and held by people who are engaged in crime and tax evasion.”
“Also,” he continued, “cash plays a huge role in black labor and illegal immigration.”
BIG BILLS ARE A CURSE — KENNETH ROGOFF
As if those very criminals wouldn’t establish a black market for banned cash.
In addition to his political fantasy of making paper notes magically disappear, Rogoff turned to a much more realistic goal regarding cashless economies.
By getting rid of cash, he said, central banks would have a much easier time implementing monetary policy — which in turn would have a more powerful effect without cash. Without paper money, Rogoff said, central banks could open the floodgates to easy money, able to push interest rates even further below zero than they already are.
Phasing Out Cash in the Industrialized World Is a Death Sentence for Poor Countries
Politics and monetary policy aside, phasing out paper money in the industrialized world would create devastating circumstances for people in developing nations.
With their weak currencies and corrupt institutions, developing countries often rely on the United States dollar for economic transactions. Furthermore, without banking access in much of the developing world, poor families using the dollar often depend on cash to make ends meet.
And while getting rid of cash in the developed world won’t make cash in the global south disappear, it will cut those people off from developed economies almost entirely. In fact, large portions of the world operate in a shadow economy called “System D.” And these people aren’t drug dealers and murderers — they’re regular people trying to feed their families.
Like Rogoff said, the black markets for labor disappear without cash, so poor people could no longer work in rich countries under the table. Without legal documentation, these laborers couldn’t open a bank account. In a cashless society, this barrier makes it impossible to work and survive.
While this outcome may be politically favorable to Rogoff, the fact of the matter is that real human beings will suffer in such a scenario. And politics should never trump humanity.
Furthermore, family members living in developed nations legally couldn’t even take cash across the border when visiting their poor relatives. The paper money simply wouldn’t be available.
Even in a world where small bills still exist, with large notes banned, the requirement of carrying enough small notes across the border would increase transportation costs. These costs would decrease the economic efficiency of remittances, leading to stickiness in the markets. That’s something any economist should want to avoid — liberal or conservative.
Is There Any Recourse at All?
So what alternatives would these poor people have if they can’t get cash? Electronic remittances offer one solution, but their extreme fees and long transfer times make sending money nearly impossible. On the other hand, people in poor regions could try selling goods across borders. But that almost always requires access to the Internet. By extension, merchants would need banking access — another near-impossibility for the global south.
Therefore, Rogoff either hasn’t thought these ideas through to their logical conclusions, or he simply doesn’t care about the lives of poor people. Either way, that’s pretty alarming, considering how he has spent the last twenty years of his life studying this topic.
Bitcoin: The Unkillable Cash
Fortunately, we have Bitcoin to protect the global south from ivory tower academics and rich regulators who want to get rid of cash.
People using bitcoin can make transactions across the globe without ever coming near a bank. Therefore, Bitcoin offers an excellent solution for developing nations trying to participate in an increasingly-digitized global economy.
Bitcoin also makes itself hard to track, making it just as good as paper cash for under the table transactions. So, with bitcoin, black labor markets can come back to life, allowing hard working people to provide for their families.
The best part? Because of Bitcoin’s decentralization, regulators have great difficulties controlling the cryptocurrency. Therefore, Bitcoin offers the perfect solution for people in System D. Especially when threatened with prosecution for simply making a living.
Thus, if these crazy ideas about banning cash become reality, Bitcoin can step in and act as the monetary system for the developing world.
What does Rogoff think about Bitcoin? He didn’t say for sure in his interview. But he did have a telling response to one question about the digital currency.
“I’m not advocating Bitcoins or other cryptocurrencies as an alternative to cash,” he said. “Not at all. I think they need to be regulated.”
What do you think about banning cash? Let us know in the comments below
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