Kenneth Rogoff, a former International Monetary Fund chief economist and Harvard professor, discusses the purpose of cash and its negative impact on the economy.
Following his recent book The Curse of Cash, at a press lunch earlier this month Rogoff established two major factors behind his motivation to bring an end to cash: its strong presence in the underground economy and the inability of the US government to control the circulation of cash.
Cash in underground markets
Despite a rather unbiased coverage by various mainstream media, so-called “anonymous” monetary instruments like bitcoin – which is actually far from being true considering the existence of a public ledger with trackable transactions – have been widely regarded as the main operating currency in underground markets.
While a fair share of illicit trade and criminal operations are conducted using digital currencies, the majority of such activities are handled with cash due to its complete anonymity. It is virtually impossible for government and law enforcement agencies to track the flow of cash in criminal deals.
Rogoff suggests that governments, particularly the US federal government, must bring an end to cash by sequentially eliminating bills, from larger to smaller values, to reduce cash circulation to the point where it would terminate most underground operations.
Negative interest rates
Rogoff also believes that the simultaneous implementation of negative interest rates by the world’s leading central banks including the Federal Reserve will help boost economic growth. In theory, an increasing number of savers will be releasing money back in circulation since a certain percentage is charged in fees if money is handled by banks.
Some of the largest central banks and commercial banks have already started implementing negative interest rates. In response, savers begin to withdraw their money from the banks and store it in physical locations, such as closets or microwaves. The banks’ intent to “boost the economy” led to a series of chaotic events in countries like Denmark and Sweden.
The role of bitcoin
If and when governments start to contemplate the abolition of cash, a digital system or ledger for the settlement of currency and assets will be built. Some central banks like the Bank of England are looking into utilising the blockchain technology to build centralised digital currency systems.
In case if these private blockchain networks fail to be distributed and operate, dominant digital currencies like bitcoin will be in high demand, increasing the value, presence, and importance of bitcoin in the world’s largest economies.
Joseph Young
