Four years ago, Kenneth Rogoff, a former chief economist of the International Monetary Fund, made a powerful case for phasing out paper money. In his book The Curse of Cash, Rogoff argued that much paper money, especially high-denomination banknotes, facilitated tax evasion and fuelled the drug trade – all the way down the supply chain: a British study in 1999 found that only four of 500 notes tested in London had no traces of cocaine.

Furthermore, the existence of cash constrains monetary policy. It is harder for central banks to implement negative interest rates when investors have the alternative of keeping a safe full of $100 bills. That seemed an abstruse point to some at the time, but the COVID-19 crisis has placed negative rates firmly on the policy agenda in several countries, albeit not yet in the United States.

Project Syndicate