[Dave Birch] Over on Kashklash, I wrote about noted economist Willem Buiter's view of cash. Which is, broadly, that it's a bad thing. In fact, he says:
Abolish currency. This is easy and would have many other benefits. The main drawbacks would be the loss of seigniorage income to the central bank... Advanced industrial countries can move to electronic and bank-account-based means of payment and media of exchange without like problem. [From FT.com | Willem Buiter's Maverecon | Negative interest rates: when are they coming to a central bank near you?]
I agree with him that we could move to e-payments without a problem, because of technological advances made in the last couple of decades, and I'll come back to this point later on as it is my focus here. But I can't help but focus on what Willem says about the note stock. Not only is cash an iniquitous regressive stealth tax that discriminates against the poor, it is also supports illegal activity on a huge scale.
The only domestic beneficiaries from the existence of anonymity-providing currency are the criminal fraternity: those engaged in tax evasion and money laundering, and those wishing to store the proceeds from crime and the means to commit further crimes. Large denomination bank notes are an especially scandalous subsidy to criminal activity and to the grey and black economies. There is no economic justification for $50 and $100 bank notes, let alone for the €200 and €500 bank notes issued by the ECB. [From FT.com | Willem Buiter's Maverecon | Negative interest rates: when are they coming to a central bank near you?]
The euro example is particularly noteworthy. Two-thirds of the euros in "circulation" (they are not actually circulating, of course, they are stuffed under mattresses in Eastern Europe) are in the form of these 100, 200 and 500 euro notes that I am pretty sure I have never seen. ATMs only give you 20 and 50 euro notes and I would imagine that many retailers would be reluctant to accept 200 and 500 euro notes at all. Both the euro and the dollar are widely used outside of their currency zone, delivering enormous income to the issuers. The sums involved.
The Fed makes money on a spread. Its main source of funds comes from issuing cash, since currency in circulation is, in effect, an interest-free loan by the public to the central bank. The interest it earns on its loans and securities is almost pure profit, or “seigniorage,” most of which it remits to the Treasury. Last year the central bank reported a whopping $43 billion in operating income.
[From The Fed makes money for taxpayers | The hedge fund of Foggy Bottom | The Economist]
In essence, then, Willem is pointing out that most cash serves only to provide a convenient store of value of criminals, tax evaders, sex workers and corrupt politicians. Yet the revenue it delivers to central banks (and from there on to governments) is substantial, which is presumably why the European Central Bank is happy to see a third of all the euros in circulation in the form of 500 euro notes. Williem is saying that central banks are pimps. And he's not the only one pointing out that we seem to be moving into a rather odd situation where governments themselves are deliberately making life easier for criminals at the expense of the law-abiding.
Physical money is disappearing and we are moving towards a cashless society where hard cash only exists to avoid taxes or to buy illegal services and goods.
[From chris woebken I selected projects]
Just my opinion, of course, but something is wrong with this picture.
