Should we trash cash?

In a brilliant and lucid new book, “The Curse of Cash,” the Harvard economist Kenneth Rogoff gives a fascinating and thorough account of the argument against cash. There are two main pillars to it. The first and more wonkish concerns something called the “zero lower bound.” Because official interest rates can’t be set below zero — if they were, people would just hold cash instead — the tool kit of monetary policy has a built-in limit. This might sound like a small point, but as Rogoff explains, “the zero bound has essentially crippled monetary policy across the advanced world for much of the past eight years.” Governments want to get money moving in the economy, but in a world awash in paper currency, monetary policy can do nothing further to help. If central banks could go below the zero bound, as a cashless economy would allow, they could in effect force people to spend their money and thereby kick-start the economy.

The zero bound, however, is not the issue in India. There, the main focus is the second big argument against cash: that far too much of it is involved in crime. Think for a moment about how much actual physical cash you have. I’m willing to bet you’re a long way below the per-capita amount of dollars in circulation in the United States: $4,200 for every man, woman and child in the country. Eighty percent of that is in the form of $100 bills, which many Americans hardly ever see. Where is all this money? The short and very disconcerting answer is that, in Rogoff’s words, “treasuries and central banks simply do not know” where this money is.