In the New York Time’s magazine, John Lanchester tackles the debate about the “anti-cash crusade”. The main arguments against cash put forth by Harvard Professor Kenneth Rogoff in his recent book “The Curse of Cash” are: firstly, the existence of cash makes it impossible for governments to force negative interest rates on its citizens - an issue coined “the zero lower bound”; secondly, cash is assumed to be criminals’ preferred tool for financing their activities and should thus be made harder to use (notably, by scrapping high denomination notes).
Although governments might see it as a quick fix to today’s morose growth statistics, it is very unlikely that the majority of the population, rich or poor alike, would be happy to see banks gradually eat up their hard-earned savings simply because interest rates are negative. Like all economic theories, it’s a theory that negative rates will push people to spend and consequently trigger economic growth. Who can guarantee that rates will ever go up? Isn’t there a slight possibility that the improbable couple of “government-bank” find a newfound system to gain much needed liquidity? Also, aimless shopping to avoid negative rates is unlikely to keep citizens serene as they slowly see their lives invaded by a growing clutter of rubbish.
By definition, criminals defy the law and are incessantly reinventing themselves to remain in the shadows. They are creative and will never be discouraged by the disappearance of a payment method or another, including cash. There are already a sufficient amount of cases proving that criminals use alternative payment methods to carry out their schemes, including bitcoins, PayPal and other cryptocurrencies as seen in the recent case of ISIS-financing in Indonesia, for example. It would be foolish to believe that with the disappearance of cash, the world will become a peaceful a place. If that were a fact, we would all undoubtedly cast our vote.
But, aside from infinite shopping sprees and empty prisons, what we should most be wary about – and what Lanchester beautifully depicts – is the triple-headed monster. No, this is not a character from a fairy tale. This is a dormant creature that could quickly grow in strength should cash disappear. And, should that ever happen, he (they) will be hard to defeat: the state, the central bank and the banking system will become so big that Godzilla will almost seem endearing. As Lancaster rightly states, if that shift ever happens, those who will suffer the most will be those devoid of the means and resources to hide their assets from the state and the tax authority: ordinary citizens. So before taking theories and fairy tales for the indisputable truth, the topic should be studied further with the contribution of those that will be most affected.
To read John Lanchester’s article, please click here [paywall].