The Case for Cash

Cash is an extremely useful social contrivance. Two possible drawbacks of high-denomination cash have recently been discussed by Kenneth Rogoff in his book, The Curse of Cash, and echoed by other economists. They are the extensive use of high-denomination cash by criminals and others engaged in illicit and corrupt activities, and the role that cash plays in avoiding deeply negative nominal interest rates imposed on bank accounts. Rogoff and others call for a phasing-out of high denomination cash over a long time. The use of cash in crime, I’ll argue, is preferable to the alternative, and there are limits to the benefits of deeply negative nominal interest rates. There are not adequate alternatives to cash for poor and unbanked people. Consequently, the current high-denomination cash in the U.S. should be retained. * Fellow, Wharton Financial Institutions Center. [email protected] I wish to thank Regis Breton, Laurent Clerc, Benoit Mojon, Adrian Penalver and other participants in a discussion session at the Banque de France for helpful comments. In addition, I wish to thank Rod Garratt, Charles Kahn, Antoine Martin, Gudrun Moede, Pooya Nazaran, and William Roberds for helpful comments. The views expressed in the paper are solely mine. I gratefully acknowledge financial support from the Asian Development Bank Institute in the preparation of this paper.