Kenneth Rogoff’s new book “The Curse of CashMoney in physical form such as banknotes and coins. More” has given a new boost to the debate on the need for cash in a digital age. Rogoff’s undeniable anti-cash stance has provoked a string of reactions including an article published in the Wall Street Journal by James Grant, editor of Grant’s Interest Rate Observer (September 9, 2016).
Freedom is the bedrock of the pro-cash argument: cash is part of a panoply of paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More methods, offering consumers the right to choose in any given circumstance. It also offers anonymity: something that other payment methods cannot. Now, anonymity is not synonymous with criminality, contrary to what pro-cash supporters believe. It simply means that we want to be free to succumb to a midday treat without worrying about our indulgences being scrutinized by others.
Grant reminds us that never in the history of banking have interest rates gone negative. Yet, instead of questioning why most economies are currently struggling not to cross the 0% landmark, Rogoff blames cash as the obstacle to prosperity and progress. Simply get rid of cash and let the rates run free, says Rogoff. Why should negative 2% or even 3% intimidate us? It will only push consumers to spend more and give the economy a new breath!
Sure, replies Grant, in a perfectly theoretical world that could be an option, but in reality, how many honest citizens would like to go on a never-ending shopping frenzy or, worse yet, agree to see their hard-earned savings evaporate into thin air? “In the topsy-turvy world of Mr. Rogoff, negative rates would be the reward to the impetuousness and the cost of thrift”, writes Grant.
And finally, we shouldn’t forget that the future of many workers relies on their pension plans – the ticket to independence in old age would only become a mirage as retirement day approaches, because like meteorology, economics cannot predict the weather that far ahead.
To read Kenneth Rogoff’s essay “The Sinister Side of Cash”, click here.
To read James Grant’s response to Rogoff’s essay, click here.