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The US should get rid of cash and move to a digital currency, says this Nobel Laureate economist

Friday, January 20th, 2017 by

https://www.weforum.org/agenda/2017/01/the-us-should-get-rid-of-cash-and-become-a-digital-economy-says-this-nobel-laureate-economist/

OLDDOGS COMMENTS

You need to read this because the World Economic Forum does carry some weight. Mostly around their waist because their heads are completely empty. They must surely believe that we are dumber than rocks if they think we are going to stand still and let corporations have all our money, and that is exactly what this is all about. Folks, digits do not have any value, they are just a medium of exchange like checks, and just who is dumb enough to exchange digits for money. I don’t mean just transaction digits because that has been going on all our life, but their real objective is to steel your cash. Under the pretense of making money safer! Well digits have no intrinsic value and you can only use them for what they allow you to purchase! Remember the word (ALLOW!)  “To let somebody or yourself have something, often a benefit or pleasure of some kind. But what if the bank does not want you to buy a particular item! ?

MONEY

 

Moving to a digital currency could have big advantages, says Joseph Stiglitz

Image: World Economic Forum / Boris Baldinger

Written by Ross Chainey Digital Media Specialist, World Economic Forum

This article is part of the World Economic Forum Annual Meeting 2017

Indian Prime Minister Narendra Modi has already removed 86% of his country’s currency from circulation in an attempt to curb tax evasion, tackle corruption and shut down the shadow economy.

Should the US follow suit?

Joseph Stiglitz, Nobel Prize-winning economist, thinks so. Phasing out currency and moving towards a digital economy would, over the long term, have “benefits that outweigh the cost,” the Columbia University professor said on day one of the World Economic Forum’s Annual Meeting in Davos.

MONEYStiglitz was speaking in the session Ending Corruption alongside Mark Pieth from the Basel Institute of Governance and APCO Worldwide Founder and Executive Chairman Margery Kraus. Stiglitz and Pieth co-authored a report, Overcoming the Shadow Economy, in November last year.

Quantifying the scale of the problem, Stiglitz said: “You can put it into the context of one of the big issues being discussed in Davos this year – the backlash against globalization, the darker side of globalization … The lack of transparency in global financial markets, the secrecy havens that the Panama Papers exposed, just reinforced what we already knew … There is a global framework for both corruption and tax evasion and tax avoidance.

“The fact that you can hide ill-gotten gains so easily in these secrecy havens really provides incentives for people to engage in this activity as they can get the economic returns and then enjoy the benefits of those returns. If there were not these secrecy havens then the benefits from engaging in these kinds of illicit activity would be much diminished.”

One of the countries that has not done enough to fight corruption is the US, Stiglitz went on to say, and one remedy could be to phase out cash and embrace digital currencies.

“I believe very strongly that countries like the United States could and should move to a digital currency,” he said, “so that you would have the ability to trace this kind of corruption. There are important issues of privacy, cyber-security, but it would certainly have big advantages.”

Stiglitz is not the only Davos economist to make the case for a “less-cash” society. Harvard’s Kenneth Rogoff has argued for two decades that a society awash with cash contributes to the growth of the underground economy. Rogoff believes large-denomination bank notes, rarely used by ordinary people and businesses, should be phased out. “Cash facilitates crime because it is anonymous, and big bills are especially problematic because they are so easy to carry and conceal

 

Kenneth Rogoff: Why we need a less-cash society’

https://www.weforum.org/agenda/2016/09/kenneth-rogoff-why-we-need-a-less-cash-society

This article is published in collaboration with Project Syndicate.

MONEY

 

Cash facilitates crime because it is anonymous.

Image: REUTERS/Thomas Mukoya

Written by Kenneth Rogoff Professor of Economics and Public Policy, Harvard University

More on the agenda

The world is awash in paper currency, with major country central banks pumping out hundreds of billions of dollars’ worth each year, mainly in very large denomination notes such as the $100 bill. The $100 bill accounts for almost 80% of the US’s stunning $4,200 per capita cash supply. The ¥10,000 note (about $100) accounts for roughly 90% of all Japan’s currency, where per capita cash holdings are almost $7,000. And, as I have been arguing for two decades, all this cash is facilitating growth mainly in the underground economy, not the legal one.

I am not advocating a cashless society, which will be neither feasible nor desirable anytime soon. But a less-cash society would be a fairer and safer place.

With the growth of debit cards, electronic transfers, and mobile payments, the use of cash has long been declining in the legal economy, especially for medium and large-size transactions. Central bank surveys show that only a small percentage of large-denomination notes are being held and used by ordinary people or businesses.

Cash facilitates crime because it is anonymous, and big bills are especially problematic because they are so easy to carry and conceal. A million dollars in $100 notes fits into a briefcase, a million dollars in €500 notes (each worth about $565) fits into a purse.

MONEYImage: RBR

Sure, there are plenty of ways to bribe officials, engage in financial crime, and evade taxes without paper currency. But most involve very high transaction costs (for example, uncut diamonds), or risk of detection (say, bank transfers or credit card payments).

Yes, new-age crypto-currencies such as Bitcoin, if not completely invulnerable to detection, are almost so. But their value sharply fluctuates, and governments have many tools with which they can restrict their use – for example, by preventing them from being tendered at banks or retail stores. Cash is unique in its liquidity and near-universal acceptance.

The costs of tax evasion alone are staggering, perhaps $700 billion per year in the United States (including federal, state, and local taxes), and even more in high-tax Europe. Crime and corruption, though difficult to quantify, almost surely generate even greater costs. Think not just of illegal drugs and racketeering, but also of human trafficking, terrorism, and extortion.

Moreover, cash payments by employers to undocumented workers are a principal driver of illegal immigration. Scaling back the use of cash is a far more humane way to limit immigration than building barbed-wire fences.

If governments were not so drunk from the profits they make by printing paper currency, they might wake up to the costs. There has been a little movement of late. The European Central Bank recently announced that it will phase out its €500 mega-note. Still, this long overdue change was implemented against enormous resistance from cash-loving Germany and Austria. Yet even in northern Europe, reported per capita holdings of currency are still quite modest relative to the massive outstanding supply in the eurozone as a whole (over €3,000 per capita).

Southern European governments, desperate to raise tax revenue, have been taking matters into their own hands, even though they do not control note issuance. For example, Greece and Italy have been trying to discourage cash use by capping retail cash purchases (at €1,500 and €1,000, respectively).

Obviously, cash remains important for small everyday transactions, and for protecting privacy. Northern European central bankers who favor the status quo like to quote Russian novelist Fyodor Dostoevsky: “Money is coined liberty.” Of course, Dostoevsky was referring to life in a mid-nineteenth century czarist prison, not a modern liberal state. Still, the northern Europeans have a point. The question is whether the current system has the balance right. I would argue that it clearly does not.

A plan for reining in paper currency should be guided by three principles. First, it is important to allow ordinary citizens to continue using cash for convenience and to make reasonable-size anonymous purchases, while undermining the business models of those engaged in large, repeated anonymous transactions on a wholesale level. Second, any plan should move very gradually (think a decade or two), to allow adaptations and mid-course corrections as unexpected problems arise. And, third, reforms must be sensitive to the needs of low-income households, especially those that are unbanked.

In my new book, The Curse of Cash, I offer a plan that involves very gradually phasing out large notes, while leaving small notes ($10 and below) in circulation indefinitely. The plan provides for financial inclusion by offering low-income households free debit accounts, which could also be used to make government transfer payments. This last step is one that some countries, such as Denmark and Sweden, have already taken.

Scaling back paper currency would hardly end crime and tax evasion; but it would force the underground economy to employ riskier and less liquid payment devices. Cash may seem like a small, unimportant thing in today’s high-tech financial world, but the benefits of phasing out most paper currency are a lot larger than you might think.

FROM DAVOS…

So this is how they are going to convince us how wonderful a cashless society will be — a society based on digital currency.  There is so much corruption because of cash.  Get rid of the cash and make every transaction that occurs have to go through a computer for someone’s bank account to reflect some kind of payment and we will get rid of all the money laundering, drugs, etc.  It might be believable if governments around the world were not the entity behind most of the crime and money laundering.  And how hard is it for them to set up a second system of payments to continue on their merry road of money laundering???  Not very.  MB

MONEY

 

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