Let’s Ban The Cash ! Actually, Is it goint to Stop The Black Market ?

It sounds shocking and challenging, but that’s what Professor Kenneth Rogoff of Harvard University offers in his new book, The Curse of the Cache. To forbid the “cache” — or at least the largest banknotes — and to switch to full electronic payments! It sounds radical, but does it benefit from it?

Rogoff analyzes the money in circulation and highlights one particular feature of their structure — in many countries, 80–90% of the money in circulation consists of the largest banknotes — for example in the US 50 and 100 dollar banknotes account for 84% of the money supply, Share is close to 97%. At the same time, most households rarely use large banknotes — who would use a € 500 banknote for daily payments? The business also does not hold a lot of cash because it is expensive and risky.

Then where do the big banknotes go? According to Rogoff, they are used in the gray economy, tax evasion and regulation, corruption, and the black economy — for illegal activities (drug trafficking, trafficking in human beings, etc.). World currencies such as the dollar, the euro, the Swiss franc are used abroad, as well as cash-raising by people who have funds of vague origin and can not just put their money in a bank.

Hence, the author’s claim that removing cash will limit gray economy, corruption, and illegal activities because it will be more difficult to make payments for them. They will not disappear, but will diminish. You do not even have to completely remove cash — at first, you can only remove the largest banknotes, 50 dollars and up. Full cash removal will require 100% inclusion of all people in the financial system and will allow central banks to bring negative interest when needed (Rogoff feels very useful).

Professor Rogoff’s ideas may sound fantastic, but they are actually being applied. In many countries, a limit has been introduced on cash payments — between one thousand and 3 thousand euros. Recently, the European Central Bank announced it would remove the € 500 banknote, other countries also remove their largest banknotes. The most advanced are the Scandinavian countries — in Denmark, nearly 60% of the population has a mobile application, which is paid by the mobile phone. In Sweden, cash payments have fallen to 5–7%, and many bank branches have no cash and ATMs at all. This also creates problems — how to make donations for churches and beggars? The solution: they are given devices with which they can accept donations through bank cards.

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