A lovely stash of cash may sound like a good thing, but as per Ken Rogoff, the large quantities of banknotes in circulation throughout the world are making us poorer and certainly less safe.
Harvard economics professor, Ken Rogoff, has been researching about paper money for 20 years and he states a lot of this cash “is utilized to promote all varieties of crime.”
Even though people in advanced economies are handling less paper money, there is more hard currency in circulation than ever before. There is currently a record $US1.4 trillion in US Dollars in circulation, or about $US4,200 for each American, chiefly in hundred-dollar notes.
Although using paper money has some advantages, Professor Rogoff maintains the amount of big bills lying around is “out of kilter.”
He’s pushing for a world where, within 15 years, the highest banknote possible would be a ten dollar note.
Beyond the innumerable monstrous crimes of human and drug trafficking and terrorism, some earners accumulate their money to avoid tax.
“Off the books” payments are regularly paid to undocumented workers in the United States, and that should make phasing out cash a key policy in attempts to stop illegal immigration.
As migrant workers could be compensated in pre-paid cards or Bitcoins, he maintains these peripheral forms of currency will not work on the equivalent scale as cash.
Estimates of uncollected tax in the US measure to about 15 percent of entire taxes.
The majority of cheaters are recognized to be cash-intensive businesses. This revenue problem is worsened in some European countries where sales tax is more significant than income tax.
According to Professor Rogoff, these nations are “really open to the concept of seeking to phase down cash.”
The amount of defrauded taxes worldwide is approximately $2 trillion to $3 trillion, Governments will be able to get it all back after making it difficult to utilize cash, but dodging tax and workplace law is made very easy with cash which can be eliminated.
Statistically, most illegal drug trafficking activities are in cash. However, drug dealers don’t favor to handle the smaller denominations, fancying hundred-dollar bills.
“If you have $1 million in hundreds, it weighs 10 kilograms, and you can fit it in a briefcase,”
That equal amount in $10 bills would be about 100 kilograms, which would make it much tougher to move about, hoard, hide and count.
On the economic front, a way for central banks to spur investment during an extended financial mess is to implement negative interest rates.
However, in an economy filled with large denomination bills, sharply cutting rates could produce “complete chaos,” says Professor Rogoff. Investments abruptly gone wrong would spur a rush to transform capital into hard currency, decreasing the effectiveness of the interest rate drop.
An essentially cashless culture, explains Professor Rogoff, would enable central banks to dramatically cut interest rates in times of harsh crisis without this chaos.
The proposal would not include small savers, rather targeting institutional investors such as pension funds and big banks, the sort of players that would require humidity-controlled, insured safes to house billions of dollars properly.