The Curse of Cash

296 Pages·2016·1.87 MB·English

by  Kenneth S. Rogoff

THE
CURSE
OF
CASH

T H E
C U R S E
O F
C A S H
K E N N E T H S .
R O G O F F
PRINCETON UNIVERSITY PRESS
PRINCETON AND OXFORD
Copyright © 2016 by Kenneth S. Rogoff
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Jacket design by Faceout Studio
Excerpt from The Collected Writings of John Maynard Keynes copyright © 1931, 1972,
2010, 2013 The Royal Economic Society. Reprinted with the permission of Cambridge
University Press.
All Rights Reserved
Library of Congress Cataloging-in-Publication Data
Names: Rogoff, Kenneth S., author.
Title: The curse of cash / Kenneth S. Rogoff.
Description: Princeton : Princeton University Press, [2016] | Includes bibliographical
references and index.
Identifiers: LCCN 2016014943 | ISBN 9780691172132 (hardback : alk. paper)
Subjects: LCSH: Paper money. | Money. | Currency question. | Monetary policy.
Classification: LCC HG350 .R64 2016 | DDC 332.4—dc23 LC record available at
https://lccn.loc.gov/2016014943
British Library Cataloging- in- Publication Data is available
This book has been composed in Sabon LT Std with DIN Pro Display
Printed on acid- free paper. ∞
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
To my parents,
June and Stanley Rogoff

CONTENTS
Preface ix
Chapter 1: Introduction and Overview 1
PART I: The Dark Side of Paper Currency:
Tax and Regulatory Evasion, Crime, and Security Issues
Chapter 2: The Early Development of Coins and
Paper Currency 15
Chapter 3: Size and Composition of Global Currency
Supplies, and the Share Held Abroad 31
Chapter 4: Holdings of Currency in the Domestic,
Legal, Tax- Paying Economy 48
Chapter 5: Currency Demand in the Underground
Economy 58
Chapter 6: Seigniorage 80
Chapter 7: A Plan for Phasing Out Most Paper Currency 92
PART II: Negative Interest Rates
Chapter 8: The Cost of the Zero Bound Constraint 119
Chapter 9: Higher Inflation Targets, Nominal GDP, Escape
Clauses, and Fiscal Policy 147
Chapter 10: Other Paths to Negative Interest Rates 158
Chapter 11: Other Possible Downsides to Negative
Nominal Policy Rates 175
Chapter 12: Negative Interest Rates as a Violation of Trust
and a Step Away from Rule- Based Systems 182
viii  •  Contents
PART III: International Dimensions and Digital Currencies
Chapter 13: International Dimensions to Phasing
Out Paper Currency 199
Chapter 14: Digital Currencies and Gold 208
Final Thoughts 217
Acknowledgments 221
Appendix 225
Notes 233
References 257
Index 273
PREFACE
This book deals with an issue that might seem stupefyingly mun-
dane, more of a minor irritant than a curse. Yet, as I will try to
persuade the reader, paper currency (cash) lies at the heart of
some of today’s most intractable public finance and monetary
problems. And getting rid of most cash could help more than you
might think.
The reader can be forgiven for thinking that monetary econo-
mists must worry about paper currency all the time, and that there
must be endless scholarly tomes about it. Nothing could be further
from the truth. Indeed, most academic and policy economists tend
to think of physical paper currency as an irrelevant sideshow in to-
day’s world of high-t ech banking and finance. Modern Keynesian
macroeconomic models either marginalize the role of cash or banish
it entirely; it is just too inconvenient to deal with. Most monetary
policy experts can’t be bothered with paper currency, as they believe
it to be thoroughly uninteresting and unimportant.
Even central bankers don’t care all that much about cash, even
though their institutions make tens of billions of dollars supply-
ing the stuff. Board members happily devote endless hours to
discussing the minutiae of interest rate policy, and how it will af-
fect inflation and unemployment. But don’t bother them with any
discussion of cash issuance except when it comes time to think
about profit and loss statements. Even then, they are not going to
get too excited. Deep down, most central bankers believe that their
main objective in life is to help guide the economy along a path of
stable growth and prices, not to make money.
Yes, cash has gotten slightly more attention in recent years, as
central bankers worry more about how far they can push interest
rates below zero, as debt- laden governments’ national treasuries
become increasingly desperate for tax revenues, as security agencies
try to forestall terrorist threats, and as justice departments try to
deal with growing national and international crime syndicates.
But most policymakers still take paper currency as an immutable