Cash is at the root of many of the world’s evils and should be done away with. Interestingly enough that argument is not coming from a cryptocurrency Geek or Bitcoin promoter; instead it is being made by Kenneth S. Rogoff, the former chief economist at the International Monetary Fund.

Rogoff has gone so far as to publish a book outlining his case for a cashless or rather cash light society. In The Curse of Cash; now available from Princeton Books and through Amazon, he makes a pretty good case for getting rid of paper currency.

Nearly 80% of the U.S. dollars in circulation are in $100 bills; a denomination most Americans almost never see or use, Rogoff pointed out. Most of those bills never see the light of day; because they’re locked way in safe deposit boxes, mattresses or drug kingpins’ secret vaults.

That statistic proves that cash is bad in Rogoff’s view. He does have a good point; as viewers of American TV crime dramas like The Shield, The Wire and Breaking Bad well know. The biggest problem bad guys often face is converting their ill-gotten gains into clean money. The easiest way to do that is simply ship cash overseas and bank or store it there.

Cash facilitates a lot of nasty stuff including drug trafficking, terrorism, white slavery, prostitution, illegal immigration, organized crime, bribery, corruption and armed robbery, Rogoff notes. He also makes the very valid point that a lot of the world’s cash is used only for bad things.

Another problem Rogoff largely ignores is cash’s role as a facilitator of violence. Most armed robberies are directed at businesses or facilities with lots of cash such as banks.

Some experts believe the widespread use of credit and debit cards; which caused many people to stop carrying cash, and not better police work for the disappearance of mugging in American cities. Thugs gave up mugging because would be victims were no longer carrying cash this train of thought goes.

Cash for Tax Evasion

Cash is still one of the main means of tax evasion Rogoff noted; particularly in Europe where cash is used to get around the VAT (Value Added Tax). Up to 17% of the VAT may never be collected because of cash-based evasion, Rogoff claims citing statistics from the Organization for Economic Cooperation and Development.

Likewise in the United States, cash is widely used to get around employment taxes; which finance Social Security (the national retirement scheme) and Medicare (the national health insurance program for senior citizens). Both Social Security and Medicare are projected to start running out of money within 20 years.

Rogoff even thinks paper money drives illegal immigration because most illegal immigrants are paid in it. He thinks greatly reducing the amount of cash in circulation would be more effective in deterring illegal immigration to the United States, than Donald Trump’s wall on the Mexican border.

The Plan to Get Rid of Cash

In his book Rogoff recommends that governments stop printing paper money entirely. The denominations larger than $10 (€10) would disappear entirely, smaller bills would all be replaced by coins; which are harder to counterfeit and store and longer lasting.

The coins would be used for the smaller transactions that cash is now used for. That would include tipping a waitress, buying a cup of coffee or purchasing something from a car-boot sale.

apple-pay-e1414504064841-1940x1090Advocates of such a plan will note that most of us are now paid electronically and even many people who were formerly paid in cash; such as Uber drivers, now receive electronic payments. Under Rogoff’s plan the poor would be given electronic payment cards or a payment app; similar to Apple Pay, to receive their government benefits which would be cheaper than mailing out checks.

The Ethical Dilemma of the Cashless Society

This plan will undoubtedly have a lot of appeal; especially to cash-strapped governments and citizens sick of crime. Yet it has some obvious ethical problems that Rogoff largely ignores.

The biggest one is the problem of fairness Rogoff would create a society; in which the poor and working class would be deprived of their means of avoiding taxation (cash). Meanwhile the wealthy would still have all sorts of ways to get around taxes from charitable donations to overseas bank accounts to dodgy accounting to loopholes in the tax laws.

The worst case scenario would be a society in which the working and middle classes pay all the taxes while the wealthy paid none. Such a situation is not a fantasy, it partially exists in the United States; where persons that make more than $118,500 (€105,629.1) a year are exempt from the Social Security tax.

A related problem is that people in a position to take advantage of electronic payment; such as the young and the tech savvy, would be in a position to easily avoid taxation. Others such as the poor, the uneducated and older people would not.

Another problem is that the very sophisticated would simply turn to next-generation technologies; such as blockchain-based cryptocurrencies like Bitcoin, to move cash around. Most people; especially the working class, would not be able to take advantage of such solutions, putting them at the mercy of the VAT Man (tax collector) while the bad guys and the rich would laugh all the way to the bank.

The Problem the Cashless Society Poses for Governments and Politicians

The cashless society might also lead to a major political problem for governments by destroying the myth that the government can control the economy. Many modern political campaigns; including those in the United States, are based on the myth that politicians have the power to reshape the economy.

The end of paper currency might convince average people otherwise; and give rise to suspicions that real power rests in the hands of central banks, or the financial industry. That is the kind of thinking which has historically led to class warfare, revolution and Antisemitism.

A strong possibility is that any attempt to shift away from cash would lead to civil disobedience, mass protests and possibly violence. Popular reactions; like that which led to Brexit, might ensue and reshape the political landscape.

These ethical and political dilemmas might kill Rogoff’s cashless society or prevent it from becoming a reality. Unfortunately they will not stop politicians; with visions of more government control and bigger tax revenues, dancing in their heads from trying to implement Rogoff’s proposals.

3 Comments
  1. […] Chief Economist Kenneth S. Rogoff recently published a book called The Curse of Cash in which he recommended that governments abolish paper money. Rogoff’s thesis sounds a great deal like the arguments Modi […]

  2. […] published a book called The Curse of Cash. In it he recommended that governments stop printing paper money and only issue coins. Rogoff believes that cash is bad because it facilitates crime, […]

  3. […] was simply implementing a suggestion from one of the world’s most prominent monetary thinkers; Kenneth S. Rogoff, a former chief economist for the International Monetary Fund. Last year Rogoff published a book […]

Leave a reply

Your email address will not be published. Required fields are marked *

*

This site uses Akismet to reduce spam. Learn how your comment data is processed.

FacebookTwitterGoogle+

©  2019 Dwarkadhish Technologies.

CONTACT US

We're not around right now. But you can send us an email and we'll get back to you, asap.

Your Name (required)

Your Email (required)

Your Subject (required)

Your Message

Log in with your credentials

Forgot your details?