Alberto Mingardi  

In defense of cash

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John Cochrane has a great post in defense of cash, reacting to hypotheses of phasing out banknotes. He makes several illuminating points and, most importantly, he doesn't shy away from a rather unpopular (at least, among legislators and policy wonks) argument: cash remains one of the few ways in which a citizen can preserve her privacy. Writes Cochrane:

If the U.S. were willing to allow anonymous electronic transactions, then we could get rid of cash. But we already have lost a great deal of the ability to transact anonymously, and the current technological and policy trend is entirely in the other direction. One used to be able to take more than $10,000 out of banks at will; now such a withdrawal must be reported. Smaller cash transactions are voluntarily reported by banks under fear of "know your customer" and anti-terrorism regulation. Remember the glorious ending of the Shawshank Redemption, where the hero takes huge piles of cash out of a bunch of banks and heads to the Mexican border? Forget it. And it's already being used politically: Justice is using know-your-customer rules deny legal but unfavored industries such as marijuana dispensaries and payday lenders access to banking.


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COMMENTS (5 to date)
JKB writes:

The fundamental reason cash cannot be done away with is electronic transactions collapse at the first strong wind. In the aftermath of disaster, there are days where you pay cash or wait hat in hand for FEMA to finally show up. And by the time they do, even waiting for the Red Cross, you will be hungry indeed. You also will have been treated shabbily by the officials who now control your very sustenance.

The government now controls the means of exchange in the US. If they go to electronic cash, there will be a black market cash equivalent in circulation within a year. Or there will be riots when the power drops or the data lines suffer a denial of service.

ld writes:

People who use large amounts of cash can have it legally stolen from them by local police departments. This is a pretty sneaky way to make cash virtually illegal.

Mark V Anderson writes:

Id -- Yes but the government can take bank account money also -- the IRS does it plenty. And the Feds are becoming more and more successful in digging out accounts in foreign countries too, with FATCA.

All in all, I think it it is easier to hide cash from the authorities than bank accounts.

Nathan W writes:

I cannot imagine how an inability to transact anonymously would not be part and parcel with the development of a fascist police state.

Better to tolerate small leakages. $10,000 as a bound for reported transactions sounds reasonable to me. I don't think it's the tax man's business whether I buy Folger's or gourmet coffee so long as the shop is passing on the taxes on those items which have been defined as taxable at a non-zero rate.

Silvestro De Falco writes:

What the Italian government has been doing in this area is just plain silly.
Italian citizens - not tourists - are not allowed to spend more than 999 euros in cash for their purchases.
And this at a time when the ECB is trying to inject liquidity in the market to stimulate the economy.
Under communism the state inhibits producers, i.e the functioning of the supply side; under liberal cashless-oriented democracies the state inhibits buyers, i.e. the functioning of the demand-side.

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