Friday, October 26, 2018

Interview from the Archive: Kenneth Rogoff says "privacy and liberty is important, and that is why" he wants "a 'less cash society'"

Editor's note: This article was originally published on March 3, 2017.

This is the final part of my discussion with Dr. Kenneth Rogoff. The firstsecond, and third articles are available on-line. 
Story by Joseph Ford Cotto
Tired of carrying cash around? Does one fellow have a plan for you.
"I am not advocating a cashless society, which will be neither feasible nor desirable anytime soon," Dr. Kenneth Rogoff wrote in a recent article for Project Syndicate. "But a less-cash society would be a fairer and safer place."
His main beef is with large-denomination notes; specifically the $100 bill. In the same piece, he said it "accounts for almost 80% of the US’s stunning $4,200 per capita cash supply" while, overall, physical currency "facilitates crime because it is anonymous, and big bills are especially problematic because they are so easy to carry and conceal." 
Rogoff, who holds the Thomas D. Cabot professorship of public policy -- in addition to an economic teaching post -- at Harvard University, has much more to say about the campaign for a cash-free country. Last year, his book, The Curse of Cash, was published by Princeton University Press and found no shortage of attention. One might say it became something of a lightning rod.

Clancy Yeates of The Sydney Morning Herald declared Rogoff's work "a fascinating contribution to the debate about what might be done to help get many wealthy countries out of an economic funk." Yeates noted that Rogoff's argument "says boring old paper (or plastic, in our case) bank notes are a major barrier to monetary policy--changing interest rates--fulfilling its potential."
On the other hand, The Wall Street Journal's James Grant unleashed the following: "If there is a curse between the covers of this thin, self-satisfied volume, it doesn’t have to do with cash, the title to the contrary notwithstanding. Freedom is rather the subject of the author’s malediction. He’s not against it in principle, only in practice."
Aside from his currency activism, Rogoff is a chess grandmaster and the co-author of This Time is Different: Eight Centuries of Financial Folly, which soared to bestseller status in 2009. He recently spoke with me about many issues pertaining to the United States's economy. Some of our conversation is included below. 


Joseph Ford Cotto: Is the concept of small-denomination currency notes more conducive to the ideals of individual rights and liberties than large-denomination notes?  

Dr. Kenneth Rogoff: Individual privacy and liberty is important, and that is why I advocate a “less cash society” and not a cashless society as many others do.  (I make this point repeatedly in the book starting from the earliest pages, though some polemicists draw the silly and incorrect conclusion that getting rid of big bills is the same as getting rid of cash entirely). Most people only use smaller bills anyway.  

Survey data shows that 95% of people never carry a $100, while the remaining 5% only purport to carry one or two.  Yet there are thirty-four 100 dollar bills floating around for every man, woman and child.  If you want to buy a $100,000 apartment secretly with $10 bills, you can easily fit them into an average size briefcase, and the weight would only be 22 pounds.  Getting rid of big bills gets mainly at people doing big-time tax evasion and crime. The idea that getting rid of large notes will lead to an Orwellian society is polemic nonsense.

There are many subtleties and issues to consider.  One only has to look at the problems India faced when it recently eliminated its two largest bills this past November. My book advocates phasing out paper currency over five to seven years.  The Indians did it overnight.  My book argues that this is a policy better suited to advanced economies where financial inclusion issues can more easily be dealt with.  And the Indians did it is such a rush, they did not have the new bills printed before phasing out the old bills.

It takes six months to a year to print currency, it is quite technical because of the risk of counterfeiting.  India’s demonetization may yet have benefits in the long run, we shall see.

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