To cash or de-cash? That is the macroeconomic question. At least, it is for Alexei Kireyev who published a working paper for the International Monetary Fund with the goal of examining the process, relationship and consequence of de-cashing within the big economic picture.
According to the paper, the positive side of de-cashing from a macroeconomic point of view may:
- Boost profits, investment and growth for central banks by decreasing currency production costs.
- Potentially reduce crime within the shadow economy by making unsupervised financial activity impossible.
- Make official statistics more reliable as every payment would be traceable if conducted with online transfer deposits rather than immediate hard currency.
However, the arguments within the paper against de-cashing seem to be more substantial and include (but are not limited to):
1. De-cashing would create disruptions for well-established payment processes. For instance, construction salaries settled in cash by remittances as well as tipping and charity customs.
2. Eliminate big notes and demand for a more smaller notes increases.
3. If de-cashing were to be established without public consent, it would create 'social tensions, mistrust, walkouts, and demonstrations' which would result in a loss of GDP.
Aimed at encouraging informed debates and questions, the working paper concludes that the success of de-cashing from a macroeconomic angle is largely depending on the balance of its costs and gains but will likely be positive. But how can you quantifiably compare financial costs to the cost of a constitutional right?
According to the paper, 'the rebalancing in monetary accounts would be purely mechanical with no impact on money supply' (p. 27, Macroeconomic Effect of De-Cashing), and although this might be true in the immediate rebalancing of accounts, the inevitable social impacts are immeasurable.
'The paper presents a simple framework for the analysis of the macroeconomic implications of de-cashing. Defined as replacing paper currency with convertible deposits, de-cashing would affect all key macroeconomic sectors. The overall macroeconomic impact of de-cashing would depend on the balance of growth-enhancing and growth-constraining factors. Starting from a traditional saving-investment balance, the paper develops a four-sector macroeconomic framework. It is purely illustrative and is designed to provide a roadmap for a systematic evaluation of de-cashing. The framework is disaggregated into the real, fiscal, monetary, and external sectors and potential implications of de-cashing are then identified in each sector. Finally, the paper draws a balance on possible positive and negative macroeconomic implications of de-cashing, and proposes policies capable of augmenting its economic and social benefits, while reducing potential costs.'