Less Cash Is More
Economist Kenneth Rogoff, PhD ’80, makes the case for phasing out big bills.
You may not have any in your wallet, but $100 bills make up an astonishing 80 percent of the U.S. currency in circulation. In his new book, The Curse of Cash, Kenneth Rogoff, PhD ’80, professor of economics and public policy at Harvard, proposes a plan to phase out most paper currency in the United States and other economically advanced nations, keeping only low-denomination notes to create what he terms a “less-cash” society.
The use of cash is on the decline already thanks to the growth of debit cards, electronic transfers, and mobile payments. Rogoff sees two primary benefits to reducing it even further. First, having fewer large bills available would cut down on tax evasion and criminal activities such as drug trafficking, extortion, and money laundering, many of which rely on cash payments. “Scaling back paper currency would hardly end crime and tax evasion; but it would force the underground economy to employ riskier and less liquid payment devices,” Rogoff wrote recently in an opinion piece for the Boston Globe.
Additionally, in a less-cash scenario, central banks would be able to set negative short-term interest rates more easily during financial crises to encourage investment and discourage holding cash. “The zero bound on interest rates has become a huge issue in macroeconomics,” Rogoff says. “It’s ... really mostly a creature of cash. The government is offering something that’s basically government debt—that’s what cash is—at a zero interest rate.”
Rogoff, who has been researching how best to transition to a less-cash society for 20 years, says he has seen signs the idea might be gaining traction. One indicator is that the European Central Bank announced in May that it will phase out production of the 500-euro note. “I sort of sensed a change of view on the part of the finance ministries of the world, who I think for a long time rejected my argument that it was penny wise and pound foolish to print big bills, and particularly in Europe as they become panicked about collecting more taxes,” says Rogoff. “They have sales taxes there more than income taxes. We have a big tax evasion problem; they have a much bigger one. So there’s already a movement you see in Greece, Spain, Portugal, and Italy to try to reduce the volume of cash transactions, and in the Nordic countries they’re really racing toward a less-cash society.”
Rogoff gets plenty of negative feedback from people who think he wants to abolish cash altogether—some of whom he suspects are engaged in activities that aren’t entirely legal. “I get notes literally saying that banning hundred-dollar bills is the worst idea since banning semiautomatic weapons,” he says.
But Rogoff stresses that he is not advocating for a cashless society, which wouldn’t be feasible in any case, and he adds that he still uses dollar bills quite regularly himself. “I make clear in the book it’s not a moral thing, it’s a policy idea,” he says. “I’m old; I use cash.” He offers a bit of anecdotal evidence: Two summers ago, he bought coffee at the Starbucks where his son, Gabriel, was working at the time. “I went in and paid cash, and Gabriel said, ‘Dad, you’re the only one who paid cash today.’”
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By Kenneth S. Rogoff, PhD ’80
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