Harvard Professor Launches The War On Paper Money

by Tyler Durden

Aug 27, 2016 2:00 PM

Six months since Larry Summers first suggested "it;'s time to kill the $100 bill," and three months after The ECB actually killed the €500 Note, another Harvard 'scholar' is reinvigorating the war on cash. Amid claims that paper money fuels corruption, terrorism, tax evasion, and illegal immigration, Ken Rogoff (ironically of "It's Different This Time" infamy) says the US should get rid of the $100 bill (and $50s and $20s)proposing, in his words, "a 'less-cash' society, not a cashless one, at least for the foreseeable future."

According to the esteemed ivory tower academic, paper currency lies at the heart of some of today’s most intractable public-finance and monetary problems. As Rogoff explains in The Wall Street Journal, getting rid of most of it - that is, moving to a society where cash is used less frequently and mainly for small transactions - could be a big help.

Rogoff's begins by stating factoids as facts...

There is little debate among law-enforcement agencies that paper currency, especially large notes such as the U.S. $100 bill, facilitates crime: racketeering, extortion, money laundering, drug and human trafficking, the corruption of public officials, not to mention terrorism. There are substitutes for cash—cryptocurrencies, uncut diamonds, gold coins, prepaid cards—but for many kinds of criminal transactions, cash is still king. It delivers absolute anonymity, portability, liquidity and near-universal acceptance. It is no accident that whenever there is a big-time drug bust, the authorities typically find wads of cash.

Cash is also deeply implicated in tax evasion, which costs the federal government some $500 billion a year in revenue. According to the Internal Revenue Service, a lot of the action is concentrated in small cash-intensive businesses, where it is difficult to verify sales and the self-reporting of income. By contrast, businesses that take payments mostly by check, bank card or electronic transfer know that it is much easier for tax authorities to catch them dissembling. Though the data are much thinner for state and local governments, they too surely lose big-time from tax evasion, perhaps as much as $200 billion a year.

Cash also lies at the core of the illegal immigration problem in the U.S. If American employers couldn’t so easily pay illegal workers off the books in cash, the lure of jobs would abate, and the flow of illegal immigrants would shrink drastically. Needless to say, phasing out most cash would be a far more humane and sensible way of discouraging illegal immigration than constructing a giant wall.

So to clarify - Cash (and Donald Trump) are at the center of all of America's and the world's ills and therefore - as a PhD who knows best - we must destroy it (for your own good)...

Obviously, scaling back cash is not going to change human nature, and there are other ways to dodge taxes and run illegal businesses. But there can be no doubt that flooding the underground economy with paper currency encourages illicit behavior.

To be clear, I am proposing a “less-cash” society, not a cashless one, at least for the foreseeable future. The first stage of the transition would involve very gradually phasing out large denomination bills that constitute the bulk of the currency supply. Of the more than $4,200 in cash that is circulating outside financial institutions for every man, woman and child in the U.S., almost 80% of it is in $100 bills. In turn, $50 and $20 bills would also be phased out, though $10s, $5s and $1s would be kept indefinitely. Today these smaller bills constitute just 3% of the value of the currency supply.

The point of getting rid of big bills is to make it harder to carry and store large amounts.A million dollars in $100 bills weighs approximately 22 pounds and can fit comfortably into a large shopping bag. With $10 bills, it isn’t so easy. Think of lugging around 220 pounds in a giant chest. Hoarders and tax evaders would find small notes proportionately costlier to count, verify, handle and store. The use of cash could be further discouraged by putting restrictions on the maximum size of cash payments allowed in retail sales.

But we need to think of the poorest people... (oh wait so what you mean is, we really only care about ensuring those with any 'real' money are unable to easily transport it away from the soon-to-be-pernicious banking system?)...

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