The Corner

If You Like Your $10 Bill You Can Keep Your $10 Bill

The war on cash grinds on.

Writing in NRODT in April I noted:

Government gathers power sometimes in great swoops, sometimes by stealth, and sometimes in slow, sly increments, foreshadowed by position papers, op-eds, and regulatory tweaks designed to address an “issue” that a careless citizenry has overlooked.

It’s this slower, slyer approach that is now in motion as Big Brother’s smaller brethren take aim at cash . . . 

Enter Ken Rogoff, an economics professor at Harvard (and previously an economist at the IMF and at the Board of Governors of the Federal Reserve System). He has a new book out on the wickedness of cash, and in this article rolls out the usual suspects, tax evaders and other criminals to justify doing something about it.

If governments were not so drunk from the profits they make by printing paper currency [seigniorage], they might wake up to the costs. There has been a little movement of late. The European Central Bank recently announced that it will phase out its 500 euro mega-note. Still, this long overdue change was implemented against enormous resistance from cash-loving Germany and Austria. Yet even in northern Europe, reported per capita holdings of currency are still quite modest relative to the massive outstanding supply in the eurozone as a whole (over 3,000 euros per capita).

Southern European governments, desperate to raise tax revenue, have been taking matters into their own hands, even though they do not control note issuance. For example, Greece and Italy have been trying to discourage cash use by capping retail cash purchases (at 1,500 euros and 1,000 euros, respectively).

Rogoff generously recognizes that there is something to be said for cash as a guarantor of privacy and, by extension, liberty:

Obviously, cash remains important for small everyday transactions, and for protecting privacy. Northern European central bankers who favor the status quo like to quote Russian novelist Fyodor Dostoevsky: “Money is coined liberty.” Of course, Dostoevsky was referring to life in a mid-nineteenth century czarist prison, not a modern liberal state. Still, the northern Europeans have a point. The question is whether the current system has the balance right. I would argue that it clearly does not.

A plan for reining in paper currency should be guided by three principles. First, it is important to allow ordinary citizens to continue using cash for convenience and to make reasonable-size anonymous purchases, while undermining the business models of those engaged in large, repeated anonymous transactions on a wholesale level . . . 

And so?

In my new book, “The Curse of Cash,” I offer a plan that involves very gradually phasing out large notes, while leaving small notes ($10 and below) in circulation indefinitely…

$10 bills! How kind. And, of course, inflation will erode the value of that $10 soon enough.

Back in May, I noted an article in which Larry Summers had supported the decision by the European Central Bank to stop printing €500 bills. Summers didn’t think that such efforts should stop there:

First, the world should demand that Switzerland stops issuing SFr1,000 franc notes…. Second, the question of the facilitation of criminal activity should be placed prominently on the agenda of the Group of 20 leading nations. There would be a strong case for stopping the production of notes with value greater than, perhaps, $50….

$50! Those were the days.

In a fine (but not altogether positive) review of Rogoff’s “thin, self-satisfied volume” in the Wall Street Journal, James Grant of Grant’s Interest Rate Observer weighs in:

Terrorists traffic in cash, Mr. Rogoff observes. So do drug dealers and tax cheats. Good, compliant citizens rarely touch the $100 bills that constitute a sizable portion of the suspiciously immense volume of greenbacks outstanding—$4,200 per capita. Get rid of them is the author’s message.

Then, again, one could legalize certain narcotics to discommode the drug dealers and adopt Steve Forbes’s flat tax to fill up the Treasury. Mr. Rogoff considers neither policy option. Government control is not only his preferred position. It is the only position that seems to cross his mind.

And, oh yes, there’s the inconvenient fact that the ability to store cash acts as a restraint on the ability of financial authorities to push interest rates below zero (I blogged a bit about this topic here):

In a deep recession, Mr. Rogoff proposes, the Fed ought not to stop cutting rates when it comes to zero. It should plunge right ahead, to minus 1%, minus 2%, minus 3% and so forth. At one negative rate or another, the theory goes, despoiled bank depositors will stop saving and start spending. According to the worldview of the people who constitute what Mr. Rogoff fraternally calls the “policy community” (who elected them?), the spending will buttress “aggregate demand,” thus restore prosperity.

Later in the piece, Grant explains how negative interest rates (now present in certain European countries and Japan) are something of an innovation:

Negative rates? You rub your eyes and search your memory. You can recall no precedent. And if you consult the latest edition of “A History of Interest Rates” (2005) by Sidney Homer and Richard Sylla, you will find none. A recent check with Mr. Sylla confirms the impression. Today’s negative bond yields, he says, are the first in at least 5,000 years.

What could go wrong?


Mr. Rogoff himself sees difficulties. For him, the problem is cash. The ungrateful objects of the policy community’s statecraft will stockpile it.

What would you do if your bank docked you, say, 3% a year for the privilege of holding your money? Why, you might convert your deposit into $100 bills, rent a safe deposit box and count yourself a shrewd investor. Hence the shooting war against currency. If the author has his way, there will be no more Benjamin Franklins, only Hamiltons, Lincolns and George Washingtons. Ideally, says Mr. Rogoff, many of today’s banknotes will take the future form of clunky, base-metal coins “to make it even more difficult to carry large quantities of currency.”

It’s plenty difficult enough now. Federal statute makes greenbacks in five- and even four-figure sums virtually non-negotiable. Just try to buy a car with a briefcase full of “legal tender.” Or try to deposit those tens of thousands of green dollar bills in the bank. The branch manager would likely file a Suspicious Activity Report. This intelligence would reside with the Treasury’s Financial Crimes Enforcement Network, as mandated by the Bank Secrecy Act of 1970. The government seems to hate cash as much as the fashion-forward economists do.

It does indeed. The Panopticon state draws closer.


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