Money changes things and it seems online currency is causing quite a stir these days.

The cryptocurrency Bitcoin and other types caused finance professionals across the world to reevaluate the way our cash flows. 

But, I think the everyday man welcomes these uncomplicated leanings towards a cashless society.

No more robberies in dark alleys or purses stolen by petty thieves.

No more high-interest rates and penalties for withdrawing your own money.

No more struggling to find change at the checkout counter, in the grocery store and fewer germs passed around as we exchange paper money.

All these are the curse of cash.

It seems everyone is looking forward to the day when we win the war on cash.

Or is this too radical an approach?

Should we then note Rogoff’s less contemporary but logical suggestions on currency reform?

The Curse of Paper Money

According to Kenneth Rogoff, cash offers consumers privacy.

However, those seeking privacy consist of drug dealers, mobsters, people who commit fraud, withhold taxes, bribe politicians, and back terrorist activities.

Therefore, large amounts of money help criminals.

He further highlights in his book, “The Curse of Cash: How Large-Denomination Bills Aid Crime and Tax Evasion and Constrain Monetary Policy,” that there is enough US currency in the world that each US resident could get $4200 equally.

However, in 2016, researchers discovered that in general, average US citizens typically have about $207, on their person. When compared to the fact that $100 notes are the majority of notes unaccounted for, we surmise that this is for illegal reasons.

Therefore, Rogoff has a valid opinion.

He says, if we do away with large currencies then we stand a chance of decreasing the prevalence of criminal activities. This would directly increase tax returns.

In this book, Rogoff gives proof and approximate estimates of the advantages and disadvantages of the protocols he puts forward. It seems the benefits of his prepositions for restructuring United States currency are noteworthy.

Examining the Radical Changes of Currency Reform

There are two elements that we must consider, in relation to currency reform, for paper money.

As finance professionals, we must examine the consequences such changes would have on the government coffers.

Overall, a percentage of the government’s liability is currency. 

The administration grants interest-bearing liabilities that central banks buy with external funds. However, a need for money decides what amount of the liability procured by the banks, is with currency.

Legal tender has a 0% interest. Therefore, the amount of money that people have, saves the government interest.

So then, what is saved is the variation linking the interest rate on the administration’s balance in the central bank’s portfolio in addition to the 0% interest rate on legal tender. Savings is given back from the banks to the government.

Consequently, if we implement Rogoff’s suggestion, to get rid of larger denominations in cash, this will cause cash circulation to diminish and directly increase the government debt limit.

Secondly, there are adverse effects for poorer class citizens.

In his book, Rogoff highlights the likelihood of government interference to improve costs for the poor. This involves sponsoring substitute ways of payment. For example, stored value cards or debit cards, even other electronic cash technology.

The cost incurred by poor people for withdrawing money is a serious matter that must be considered. Venezuela and India are two prime examples.

They tried their own currency reform strategies and experienced significant productivity details and interruptions as a result. People lined up at banks for hours trying to convert old bank notes. It smacks of mismanagement.

Kenneth Rogoff posits that at the end of the day, the social advantages of reducing currency usage are worth considering because the benefits are substantial.

Keeping the points discussed earlier, in mind, I tend to agree.

Though, a large segment of his book argues that the fractional or full removal of paper money could also substantially assist fiscal policies. Therefore, based on that, his deductions are dubious.

It is my opinion that Kenneth Rogoff’s book, The Curse of Cash, lays down many arguments for implementing currency reform and that they would have advantages. However, the book serves more of the purpose to stimulate discussion, rather than present applicable solutions that could be realized, realistically.

Let’s Continue the Debate on the War on Cash

As we proceed through the 21st century, we can continue to search out fundamental ways to fix our cash problems.

We can look to China’s economy and examine some of the strategies that they have already implemented successfully. A large percentage of their population and infrastructure already accommodate cashless transactions.

The Curse on Cash continues the discussion, but it gives us more of an axis on which to rotate and generate further solutions.

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