Do we really need cash at all? It might not seem like it, but people continue to use cash in the U.S., and around 85% of global transactions involve cash. There are a number of countries trying to do away with cash entirely. Both Sweden (second story) Denmark, and Norway are actively trying to eliminate cash. Some have estimated that cash itself poses a real burden on the economy. While eliminating cash sounds nice in theory, in the US we have spent years debating the possibility of eliminating just the penny (they do cause problems). Without much sense of irony, people do not like the idea that the government is going to eliminate (or even change) the cash in their pockets.
Eliminating cash might have its benefits from the perspective of a central banker. In a world where central banks have begun to charge banks for holding reserves, instead of paying interest on reserves, hoarding cash has become a way of getting a higher nominal return than one would get in a bank. Thus, if a central bank could eliminate the usage of cash, they would have the ability to drive negative rates even lower. Pushing rates on reserves to negative territory gives banks an even greater incentive to make loans. This should increase economic activity, either through consumption, investment, or export/imports.
Questions You Might Consider
Remember, don’t try to answer all of these questions, just focus on one, provide some evidence, and support your opinion. NOTE: There is a delay between you posting your comment and it appearing, since I have to approve all comments by hand. Make sure you save your comment in a word processor file before posting it here. I cannot help you if “the ether” ate your homework.
- Do you think we need cash, or could we be a cashless society? Think about how this might play out in the U.S. Why are other countries in Scandinavia able to pull this off? What is the consequence of such a move?
- Do negative interest rates potentially influence the economy? If the central bank is charging banks for sitting on reserves, what does this really mean for the banks? Do you expect banks to start charging retail clients for holding deposits at banks? What happened to the “zero lower bound” on nominal interest rates?
- As a question, one might consider the debate over putting Harriet Tubman on the $10 or $20 bill. Currently Alexander Hamilton is on the $10, and Andrew Jackson is on the $20. You might discuss the history of the Treasury and central bank to explain why the Treasury ultimately decided to eliminate Jackson instead of Hamilton. Sadly, it may have been the Tony-award winning “Hamilton: The Musical” that helped save his image, and push Jackson off the $20. Who should be replaced? Why? What is the logical argument for any of these people to be on our money?
Tip: Do not capitalize all the letters of “Fed” since it is not an acronym. This really bothers me…