Yesterday in the Wall Street Journal, Harvard economist Kenneth Rogoff wrote about “The Sinister Side of Cash” and what it would be like to do without large denomination bills including the $100, $50 and $20 bills as well as their foreign equivalents. Illicit activities such as trafficking or tax evasion would be more challenging while the preservation of smaller bills would still allow for some degree of anonymity in transactions. Additionally, monetary policy could be more effectively implemented in passing through negative interests across the economy, including depositors, thereby eliminating the zero lower bound.
While Dr. Rogoff lightly references alternative substitutes for storing and transferring values such as diamonds and gold, the rise of cryptocurrencies specifically warrants greater attention unless further regulation is effectuated to limit their expansion. As a regular follower of news surrounding P2P payments and cryptocurrencies, I am confident that private digital currencies will be in vogue by 2030, if not earlier, as the political landscape becomes more fraught across the globe and as monetary policy is led to explore new tools in its pursuit of inflation targets and maximum employment with unknown second-order consequences.
In listening to a recent series on oil by NPR’s Planet Money, I am reminded of the power of human ingenuity in the pursuit of progress and/or self interest — we could live in a world without oil just as we could live in a world without dollar bills, despite some immediate challenges. But until such a world exists, cash is still king.