By Nathan Heller
The New Yorker
In a new book, “The Curse of Cash,” Rogoff, now a professor at Harvard, argues for phasing out paper money in the U.S., starting with big bills and slowly letting small denominations fall toward disuse. “Paper currency has become a major impediment to the smooth functioning of the global financial system,” he writes. His cause dates to the late nineteen-nineties, when he found that sixty per cent of the value of the country’s currency supply was in hundred-dollar bills—an astonishing proportion, considering how rarely C-notes show up in ordinary life. Since then, the percentage has risen (it’s now about eighty per cent), with $1.34 trillion outside banks at any moment. That’s nearly forty-two hundred dollars carried by every man, woman, and child in the U.S. Under whose mattress has all this cash vanished?
Rogoff argues that the invisible large notes must be paying off-the-book wages. They are sitting in Zurich safe-deposit boxes, probably, crossing borders with cartels and traffickers, and doing other awful things. The U.S. dollar is an unofficial currency in both unstable economies (such as the Philippines) and under-the-table oligarchies (China, Russia). Phasing out big bills would make it harder for domestic currency to support corruption abroad. A million dollars in hundred-dollar bills is easy to tote in a shopping bag, but a million in ten-dollar bills weighs an ungainly two hundred and twenty pounds. Hobbling the underground market should also temper tax evasion, a costlier problem than many people realize. The most recent I.R.S. estimates indicate a tax-payment shortfall of four hundred and sixty billion dollars a year—a disparity that’s transferred to those who pay. Rogoff speculates that eliminating big bills would also be a more effective deterrent to illegal immigration than, say, a border wall, because the wages of undocumented workers are, necessarily, paid in cash.
Most important for many economists, low-cash life allows for negative interest rates, in which the lender pays the borrower interest. These are already in limited use in Europe and Japan, and they’ve become the subject of increasing attention in the U.S. (Paper money is an obstacle, because if interest rates went negative a lot of people would cash out and stuff money into sock drawers—that way, at least, they’d get a zero rate.) Some economists think a quick drop into negative rates during a global economic crisis, like the one in 2008, would have the effect of a defibrillator: there would be a brief jolt, but then the system would get pumping again, and both interest rates and inflation would return to healthy, growth-oriented zones. As things are, rates can’t drop below zero, but they struggle to climb. For these and other reasons, Rogoff told me, some formerly skeptical colleagues have warmed to the idea of phasing out cash. Seriously considering his sunset scenario in the U.S., however, would require looking to a country that has already started toward that horizon.
Picture: Sgt. Sinthia Rosario (https://www.dvidshub.net/image/1050678) [Public domain], via Wikimedia Commons