The Curse of Cash.

• Author: Luther, William
• Position: Book review

The Curse of Cash

By Kenneth S. Rogoff

Princeton, N.J.: Princeton University Press, 2016.

Pp. x, 283. $29.95 cloth.

In The Curse of Cash, Ken Rogoff makes the case for getting rid of hand-to-hand currency. The argument is relatively straightforward. Cash, according to Rogoff, is used primarily to buy and sell illegal goods and services and to evade taxes. It also places a lower bound on interest rates, thereby limiting the extent to which the monetary authority can prevent recessions. As such, he argues, we would be better off without it.

With this in mind, Rogoff offers a simple proposal to eliminate cash. Largedenomination notes--such as hundred- and fifty-dollar bills in the United States--could be eliminated immediately because they are so rarely used in the formal, legal economy and because those who do use them can switch to smaller-denomination notes at little cost. Smaller-denomination notes--such as twenties, tens, and fives--would be phased out over a longer period of time, perhaps a decade or more. Over this period, Rogoff maintains, poorer, unbanked Americans who rely heavily on cash would have plenty of time to transition to a cashless world. Governments might even encourage the transition, he suggests, by subsidizing deposit accounts or requiring direct deposit for welfare recipients. And, if some degree of financial privacy is desirable, we might choose to keep low-valued coins in circulation. Coins, he reasons, are only a little costlier for making routine transactions but significantly more cumbersome for holding and transporting large sums, as criminals are apt to do with large-denomination notes.

Rogoff's work is subtle and sophisticated. He anticipates many counterarguments and heads them off to the extent possible. Nonetheless, I find three major shortcomings in the work: the evidence on the extent to which cash is employed by criminals and tax cheats is flimsy; the net benefits of eliminating crime and tax evasion are overstated; and it is not clear that cash prevents the central bank from conducting effective monetary policy.

To estimate the share of currency employed by criminals in the domestic economy, Rogoff subtracts the share of currency held abroad, the share of currency held by banks for legitimate purposes, the share of currency held by firms for legitimate purposes, and the share of currency held by consumers for legitimate purposes from the total share of currency in circulation. Citing several...