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Costs and Benefits to Phasing Out Paper Currency

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  • Kenneth S. Rogoff

Abstract

Despite advances in transactions technologies, paper currency still constitutes a notable percentage of the money supply in most countries. For example, it constitutes roughly 10% of the US Federal Reserve?s main monetary aggregate, M2. Yet, it has important drawbacks. First, it can help facilitate activity in the underground (tax-evading) and illegal economy. Second, its existence creates the artifact of the zero bound on the nominal interest rate. On the other hand, the enduring popularity of paper currency generates many benefits, including substantial seigniorage revenue. This paper explores some of the issues associated with phasing out paper currency, especially large-denomination notes.

Suggested Citation

  • Kenneth S. Rogoff, "undated". "Costs and Benefits to Phasing Out Paper Currency," Working Paper 168026, Harvard University OpenScholar.
    • Handle: RePEc:qsh:wpaper:168026
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    File URL: http://scholar.harvard.edu/rogoff/node/168026
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    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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