While investigating Bitcoin, Antonis Polemitis once poked fun by imagining how the media would react to the introduction of cash. He titled his parody, "Bizarre Shadowy Paper-Based Payment System Being Rolled Out Worldwide." Cash has been dubbed "bills" among "the shadowy community of anti-banking libertarians who have been the primary users of cash to date," the article explains, and "though hard to imagine, cash operates with no consumer protection at all. If your ‘bills’ are stolen or lost, they are gone forever."
A later section of the article is titled "Perfect for Criminals":
The launch of cash has provoked a reaction from law-enforcement agencies worldwide that universally condemned the development. “Cash is a 100% anonymous and untraceable payments technology. It is like a weapon of mass destruction launched against law enforcement,” said Mike Smith, the recently confirmed FBI Director. “It is the perfect payment mechanism for criminals, drug cartels, terrorists, prostitution rings and money launderers. We don’t know how we will be able to combat such a technology and fully expect that a new generation of super-criminals will emerge, working in the shadows of a world where they can conduct their illicit affairs without leaving a trace.”
Polemitis quotes the fictional banking superintendent of New York State: "I can’t think of any reason that a law-abiding individual would want to use cash," he declared. "At a bare minimum, we believe there should be a licensing procedure for individuals or businesses that plan to use cash, a ‘Cash-License’ as it were. This license will limit ‘cash’ to trust-worthy individuals who keep detailed auditable records of all their cash transactions in order to keep New York safe from criminals.”
At the time, I laughed.
Today I worry that the parody is prescient. Kenneth Rogoff, a professor of public policy and economics at Harvard University, is as good a place to begin as any. Under the headline, "Paper money is unfit for a world of high crime and low inflation," he declares in the Financial Times that "it is time to consider whether paper currency is vestigial, or worse," in part because "phasing out currency would address the concern that a significant fraction, particularly of large-denomination notes, appears to be used to facilitate tax evasion and illegal activity."
He is hardly alone. Late last year, The New York Times posed this question in its Room for Debate feature: "Should the U.S. eliminate cash and stop printing currency?"
"Scrapping cash is simple and elegant," Matthew Yglesias wrote back in 2011, "which is why it will happen one day soon." Public-policy intellectuals are often taken by their own perception of simplicity and elegance, the desires of the governed be damned. They imagine that simplicity on paper will lead to real-world utopia.
"Already, a movie character depicted as carrying a large quantity of cash can be reliably assumed to be doing something illegal," Yglesias wrote. "Meanwhile, the rise of phone-based mobile payments services such as Square and the emergence of a complete mobile banking industry in Africa point to the arrival of the day germ-ridden cash will be as inconvenient for small transactions as it is for large ones. At that point, cash will be left with its rump use as a medium of exchange for drug dealers, tax evaders, and other shady operators and we can expect countries to start banning it altogether. The first country to impose that ban will find there’s an appealing hidden benefit: Without cash, there’s no need to ever have an extended recession."
So there you have it: Let Yglesias and his technocrat-manager friends bring all money under the control of government and corporate financial institutions (never mind their recent performance record) and hard times will be a thing of the past!
Does that sound too good to be true to anyone else?
I cite these journalistic treatments instead of scholarly arguments not because the latter don't exist, but to demonstrate that the idea has made its way into mainstream discourse. True, the masses are not clamoring for this change. What concerns me is that the movement grows stronger despite the lack of popular appeal. The rise of electronic-payment systems is wonderful. I use credit cards and debit cards all the time. I also use cash. Like me, most people want the ability to use cash in many circumstances. Revealed preference could not be more clear.
But elite incentives are different. Federal, state, and local law enforcement, as well as tax authorities, want to bring as much of the economy under their direct supervision as possible. Economists like Rogoff and technocracy-friendly journalists like Yglesias want to design and popularize "elegant" systems of rational central planning, and to eliminate checks on centralized power, messiness, and spontaneous orders. Forget folks who like cash. Never mind worries about forcing us all to run all spending through a corrupt corporate-banking system. Never mind the resilience of having a medium of exchange in the non-digital world that works when the power grid is down, when one's smart phone is dropped in water, when one's identity is stolen by hackers, or one's account frozen by Visa or Bank of America because a purchase on vacation was deemed suspicious.