SteemIt Experimental Article on behalf of Stefan Wolf

Book Review: The Curse of Cash - Cash, Less Cash, or No Cash?

An Ontology of Money

Kenneth Rogoff’s book, The Curse of Cash, he's the Thomas D. Cabot professor of Public Policy at Harvard University, former chief economist at IMF, International Grand-master of Chess. He certainly is not lacking in formidable intellectual qualities which is why his latest book works up quite the neuron storm when properly read and analyzed. Naturally, it has stirred up quite the debate in the who’s who of economic thought.

Forthwith, the book examines the age-old tragedy of cash and begs the question of should we transition to a “less cash” society, although not completely a cashless society? Why are we using cash when it facilitates crime, tax evasion, extortion? Cash does certainly carry a profit incentive despite its malevolent practices. We do know that some countries are certainly phasing away with, especially in Scandinavia and India. Rogoff argues for phasing out paper money in the U.S., commencing with big bills and gradually allowing small denominations roll into the miasma of disuse. “Paper currency has become a major impediment to the smooth functioning of the global financial system,” he notes. We see his crusade apparently dates to the late 90s, when he observed that sixty per cent of the value of the country’s currency supply was in hundred-dollar bills—a surprising proportion, considering how rarely C-notes show up in ordinary life. Since that time in memorial, the percentage has increased (eight-percent thereabouts), with $1.34 trillion outside banks at any moment. When it is put to scale, folks, that is nearly forty-two hundred dollars carried by every man, woman, and child in Stateside. So, the vital query to be asked in the face of such hokum, where is the cash?

Enter Jim Grant in a rather enthusiastic, I would say intellectual denigration of Rogoff’s book in the Wall Street Journal, to which the latter responds as being "long on ad hominem and short on logic, and contains both simple errors as well as profound misconceptions (krogoff and Rogoff 2016)". Grant jabs at Rogoff by categorically stating: “You rub your eyes. You can recall no precedent. There has never been one in 5,000 years of banking.” In the ire of that statement, he’s talking about the concept of negative interest rates on cash to which Rogoff extols the virtues therewith (Grant, 2016). Rogoff fires off a rebuttal by stating that this statement is at best profoundly misleading and gives a historical account. “Before paper currency, governments routinely paid negative interest rates on metallic currencies by calling in coins and shaving them (as my book discusses at some length in chapter 2). If your debt is repaid in physically debased pence that have much less silver than the ones you lent, it is a negative interest rate in any meaningful sense (Rogoff, 2016)”. Grant concludes his furtive expression by declaring “Strip away the technical pretense and what you have is politics. The author wants the government to control your money. It’s as simple as that.” Well, I don’t want my money to be at the mercy of the State. I think about Bitcoin and all it stands for in this crucible of absolute chaos, but of course, there is a method to this madness, which all these pundits are exploring, notwithstanding the virtues of Bitcoin and Blockchain.

What stands out for me is the negative interest rates thing Rogoff highlights. So, essentially, the book suggests that we should abolish physical cash, replacing it with a purely electronic version, that the government has control of and can completely garnish in some orchestrated ‘macro-fix’, hmmm, not really for that idea. In Rogoff’s ideal (cash-free) world, as one Forbes writer writes, “people would not be able to escape a government-imposed fee on their idle money balances. In other words, people would have no alternative to electronic accounts, and have no way to stop the government from taking their money when, for example, the Fed declared a macroeconomic emergency.”

As a dealer in international macroeconomics, notably, Rogoff earnestly believes in the power of macroeconomic stabilization policies. He therefore is of the opinion that negative interest rate authority is a valuable tool, albeit one the Fed/ Central Bank should use only in times of severe recession or depression. In Kenya, a country where the plebeian has very little control on what the Central Bank of Kenya does, or for that matter, the banking sector in terms of sustainable inclusive banking, the repercussions could be eruptive.

In such profundity, as a non-economist and am sure those like me find it that what is confusing is not the idea of abolishing physical notes and coins – on so many levels this is appealing, specifically, its consequences for criminal activity. No, what’s bizarre is his insistence on charging negative interest rates on cash to stimulate demand under deflation. The obvious common-sense query is that substituting zero-interest cash with negative interest rate cash makes the holders of cash worse off. But he insists his plan doesn’t involve small savers. Either way, a task lies ahead of us if such a reality is to be had.

What I am sure about and insist on is that decentralized technologies like the Bitcoin-Blockchain would suffice well in an increasingly confounding financial world. To end on this note of freedom, I will let Fyodor Dostoyevsky speak for me by saying “Money is coined liberty.”

References:

Grant, J. (2016) Hostage to a bull market. Available at: http://www.wsj.com/articles/hostage-to-a-bull-market-1473456611 (Accessed: 24 January 2017).

 

krogoff and Rogoff, K.S. (2016) My new book the curse of cash has provoked a vigorous debate of transitioning to a “less-cash…. Available at: https://medium.com/@krogoff/my-new-book-the-curse-of-cash-has-provoked-a-vigorous-debate-of-transitioning-to-a-less-cash-5ca480491a8a#.71ne9h4dp (Accessed: 24 January 2017).

 

Rogoff, K.S. (2016) The curse of cash. Princeton, NJ, United States: Princeton University Press.