The War on Cash: A Review of Kenneth Rogoff's The Curse of Cash

Central bankers and mainstream monetary economists have recently become intrigued with the idea of reducing or eliminating hand-to-hand currency. The most comprehensive defense of this proposal is Kenneth S. Rogoff’s recent book, The Curse of Cash (2016a). Because cash is widely used in underground economic activity, Rogoff believes that the elimination of large-denomination notes would help to significantly curtail crime and tax evasion. Suppressing such activities would have the additional advantage of increasing government tax revenue. He also believes that phasing out most cash would enhance macroeconomic stability by giving central banks an unconstrained ability to impose negative interest rates. But Rogoff offers no genuine welfare analysis of the underground economy, including benefits as well as costs. Nor can he definitively demonstrate any increased revenue for the U.S. government from phasing out cash. With respect to negative interest rates, Rogoff is unable to make a strong case that the policy is even needed, much less that it would work. Moreover, his analysis entirely ignores the public-choice implications of his proposal and exhibits naïve reliance upon the benevolence and foresightedness of policymakers. In short, Rogoff’s case for confining currency to small denominations is, when not entirely mistaken, extremely weak.