IMF Working Paper: The Macroeconomics of De-Cashing

May 4, 2017 Share Source

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:

  1. Boost profits, investment and growth for central banks by decreasing currency production costs. 
  2. Potentially reduce crime within the shadow economy by making unsupervised financial activity impossible. 
  3. 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. 

 

Download the full study here

Source:

Kireyev, Alexei., 2017, "The Macroeconomics of De-Cashing," International Monetary Fund. PDF file:///Users/dominique.e/Downloads/IMF_The_Macroeconomics_of_De-Cashing_March_2017_.pdf

Last Updated: June 9, 2017