This Harvard Economist Is Trying to Kill Cash
Kenneth Rogoff has an interesting résumé: international grandmaster of chess, former chief economist of the International Monetary Fund, professor at Harvard University. And he is now—unofficially—the No. 1 enemy of cash.
"I'll admit, it's a very quirky topic," Rogoff said at a press lunch on Tuesday put together by the publisher of his new book, The Curse of Cash. But he insists that a country without most cash is an idea whose time has come.
Law-abiding citizens rarely have need for $100 bills, yet there are 34 of them in circulation for every woman, man, and child in the U.S. That suggests the bills are circulating mainly in the underground economy. If the biggest bill were worth $10, rather than $100, delivering someone a million bucks under the table would require a 220-pound chest rather than a 22-pound briefcase. Forcing people to use smaller bills, Rogoff argues, might make crime more conspicuous and less convenient.
Rogoff also contends that suppressing cash would make it easier for the Federal Reserve and other central banks to boost economic growth by pushing interest rates into negative territory. That's the strange world where you pay to keep money in the bank and get paid to borrow it. The theory is that negative rates will induce people to save less and spend more, which will revive growth. Savers won't tolerate negative interest rates on their savings as long as cash is an alternative. Why not simply withdraw stacks of $100 bills and keep the cash in a mattress or a safe?
Rogoff says he doesn't want to get rid of cash all at once. First, he would phase out 100s, then 50s, then 20s, leaving smaller bills in circulation for the foreseeable future. "I want to have a less-cash society, not a cashless society," he said.
Law enforcement officials are among Rogoff's biggest allies in the war on cash, he says, and some central bankers are also interested. The front of his book carries a blurb from former Fed Chairman Ben Bernanke, who calls the book "fascinating and important" and the argument "compelling and wide-ranging." Former Treasury Secretary Larry Summers and Citigroup Chief Economist Willem Buiter have also endorsed the idea, which Rogoff first broached in a scholarly paper in 1998.
Some conservatives, on the other hand, detest the idea, fearing that getting rid of cash will make it easier for government to monitor and control citizens' behavior. The anti-cash ideas of Rogoff and Buiter "are now the foundation for the new age of Economic Totalitarianism that confronts us," foreign-exchange analyst and blogger Martin Armstrong wrote last year.
Rogoff doesn't view totalitarianism as much of a threat. He does worry just a bit that getting rid of cash could make it harder for central banks to control prices because of an "extremely interesting and provocative conjecture" of economist Neil Wallace, who taught at the University of Minnesota and is now at Penn State. The details are complicated, but the concept is that monetary policy only works if bonds are different from cash, and if cash became electronic it would act just like bonds.
In his research, Rogoff decided that central banks can probably avoid the problem Wallace raised, but he admits to uncertainty on this point. He imagines someone telling him, "Oops! The Fed can't control prices anymore. That was a theory. Didn't you think about it?"
Podcast: The International Plot to Kill Big Bills