Opinion
Has Paper Money Outlived Its Purpose?
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There is a very real sense in which we are what we buy, so protecting our privacy requires controlling information about our payments. Cash is a vehicle for freedom.
By Kim Schoenholtz and Stephen Cecchetti
Serious people have been suggesting that we think hard about eliminating paper currency. Paper money facilitates criminality and creates the zero lower bound (ZLB) for nominal interest rates. So, why not just get rid of it and replace it with electronic money?
There is an enormous amount of currency out there. For dollars and euros, the value in circulation is in the range of $4000 per inhabitant. In the Japan, the number is nearly twice this big. And, most of the notes in circulation are large denomination: 77 percent of U.S. currency is in $100 bills, 53 percent of euro area currency is in bills of €100 or more, and ¥10,000 notes account for 87 percent of Japanese paper currency.
The arguments in favor of getting rid of all this stuff are powerful. Law-abiding taxpayers simply do not keep this amount of cash around. The natural conclusion is that the extraordinary volume of currency -- especially the large-denomination component -- is funding illegal activity, both outright criminality and more mundane tax evasion. Eliminating paper currency -- forcing all transactions through some traceable settlement system -- would surely help reduce this.
Read full article as published in The Huffington Post
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Kim Schoenholtz is a Professor of Management Practice and Director of the Center for Global Economy and Business.
There is an enormous amount of currency out there. For dollars and euros, the value in circulation is in the range of $4000 per inhabitant. In the Japan, the number is nearly twice this big. And, most of the notes in circulation are large denomination: 77 percent of U.S. currency is in $100 bills, 53 percent of euro area currency is in bills of €100 or more, and ¥10,000 notes account for 87 percent of Japanese paper currency.
The arguments in favor of getting rid of all this stuff are powerful. Law-abiding taxpayers simply do not keep this amount of cash around. The natural conclusion is that the extraordinary volume of currency -- especially the large-denomination component -- is funding illegal activity, both outright criminality and more mundane tax evasion. Eliminating paper currency -- forcing all transactions through some traceable settlement system -- would surely help reduce this.
Read full article as published in The Huffington Post
___
Kim Schoenholtz is a Professor of Management Practice and Director of the Center for Global Economy and Business.