Author:White, Lawrence H.

The "war on cash" refers to a set of policies, in the United States and around the world, deploying the power of government agencies to suppress the use of paper currency. The principal aim is to shift transactions to credit card and hank account media that leave an electronic data trail for law enforcement and tax authorities. A secondary aim is to raise the cost of cash storage so as to allow the central bank to push nominal interest rates further below zero.

The phrase "war on cash" is of course intended to be dramatic. Harvard economist Kenneth Rogoff (2017) has objected to it as "a polemical exaggeration" in his response to a critical essay review (Hummel 2017) of his recent book on the topic. What he considers an exaggeration is not the term "war," mind you, but the unqualified term "cash," given that he himself advocates only "a war on big bills" and not a fully "cashless society." Point granted. But this complaint about overly dramatic phrasing is a bit ironic coming from the author of a book entitled The Curse of Cash, not The Disadvantages of High-Denomination Bills (Rogoff 2016a).

Some other writers and officials wage war not only on big bills but also on all cash transactions and on other private payment methods like bitcoin. They do seek a cashless society. They want to drive all transactions into forms that leave an audit trail for the law enforcement and tax authorities. In this respect the phrase "war on cash" is too narrow rather than too broad. It is really a "war on financial privacy." They would welcome us to a financial panopticon.

The phrase "war on cash" suggests a parallel to the "war on drugs" and aptly so. In both wars, traditional civil liberties are shunted aside in the criminalization, surveillance, and prosecution of victimless private activities.

The main indictments of large-denomination currency notes by anti-cash warriors are built on guilt by association: criminals use large notes, so anyone who uses them might be a criminal. It is of course trae that the notes are used by tax evaders, money launderers, terrorists, human traffickers, drag dealers, and any other horrible type of criminals you might like to name.

But large notes are also used by noncriminals. While it is no doubt true that banning high-denomination notes would "make life harder" for criminal enterprises (Sands 2016), it would also, as I have previously written (White 2016), "make life harder for everyone else." The rest of us also find high-denomination notes convenient now and again for completely legal and noncontroversial purposes, like buying automobiles and carrying vacation cash compactly. A serious survey of eurozone currency use finds that "in Italy, Spain and Austria ... almost one-third of the interviewees always or often use cash for purchases between 200 [euro] and 1,000 [euro]" (ECB 2011). A Deutsche Bundesbank webpage (2016) has noted that, in the eurozone, "Cash in circulation has more than quadrupled since euro currency was introduced; it now stands at more than 1 trillion [euro]." Is this because crime has quadrupled? No. More likely, it is because cash is a convenient payment method, and cash has become less costly to hold with the euro bringing lower inflation to the formerly high-inflation member countries.

Coercive efforts to suppress cash deprive honest people of the ability to use their preferred method of payment. The demonetization fiasco in India, discussed below, is a dramatic illustration of the resulting harms.

Current Tactics in the War

The main policy tactics in the war on cash are currently four:

  1. Abolish high-denomination banknotes.

  2. Place a maximum legal value on cash payments.

  3. Require declarations from any party carrying a cash amount above a specified value across the national border.

  4. Require banks to report to authorities any cash deposits or withdrawals in amounts above (or suspiciously near) a specified value.

I will comment on the status of each of the four in turn, for the benefit of the reader who is not aware how far the war on cash has already proceeded. I note here without further discussion that there is talk in some developed countries of deploying additional weapons, including a tax on cash withdrawals above a threshold amount such as already practiced in Nigeria. I note also that since 2016 Greece has required citizens to declare to the tax authorities any personal cash holdings of 15,000 [euro] or more.

Abolish High-Denomination Banknotes

Central banks long ago (the 1930s in the United States) monopolized the issue of currency notes, banning private note issue by commercial banks in all but a few places (Scotland, Northern Ireland, Hong Kong). This may be regarded as an early government victory in the war on cash. (1) As a result governments can now restrict the sizes of currency notes in circulation merely as an administrative matter. A few central banks in recent years have withdrawn their popular high-denomination banknotes. Most prominently the European Central Bank, citing concern about the...

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