How the War on Cash betrays public interest

calendar iconJan 30, 2018


In a recent article by monetary policy expert and senior fellow at the Cato Institute, Lawrence H. White reviewed the cost of a war on cash in response to recent data on cash use from the European Central Bank occasional papers series and the Federal Reserve Bank of San Francisco report.

In his article - titled, 'More Evidence of the High Collateral Damage of a War on Cash' - Lawrence reminds his readers that the facts and figures in the ECB and FRBSF reports speak for themselves:

The EU and the US public still prefer cash

[The evidence from the ECB and FRBSF reports] is essential to any serious evaluation of proposals to ban large-denomination in notes in the United States and Europe. - 'Larry' White

In terms of the discussion over whether high-denomination notes should be withdrawn from circulation, some believe that it would irradicate crime by inconveniencing criminals... but would it? Lawrence explains how such 'a policy to suppress their use is harmful rather than beneficial'. 

'Besides making the debatable quantitative assumption that law-abiding cash use is negligibly small, Sands and Rogoff also make a normative assumption that strongly tilts their seemingly neutral estimates of overall welfare effects.' - 'Larry' White

According to the ECB, almost 20% of EU households have held a €200 or €500 banknote and almost a quarter admit to keeping some cash at home as a precautionary reserve, suggesting that cash is not only used as a means of payment, but also as a store of value. It is not right for cashless pushers to dismiss the public's (very private) habit of saving for a rainy day, particularly when it's motivated by profit or power.

The unsubstantiated assumptions over welfare use made in Rogoff's book and Peter Sand's working paper are therefore dangerous.  

Excerpt from Cato Institute article
The leading arguments for banning large-denomination currency notes are those made in a much-cited working paper by Peter Sands and at book length by Kenneth Rogoff. They have been rebutted persuasively by Pierre Lemieux and Jeffrey Hummel in their respective reviews of Rogoff’s book. I have previously offered my own rebuttals here and here...

...It stands to reason that ordinary citizens who hoard cash, say because they dislike surveillance of their banking activity, or fear a breakdown in banking system functionality for reasons of natural disaster (such as recently happened in Puerto Rico) or political upheaval, are the very people who are least likely to divulge the true size of their hoards to strangers, no matter what assurances of anonymity they receive...

'These numbers do not indicate to me that law-abiding cash use is negligible — but armed with the figures, the reader can make his or her own judgement about what level of cash use counts as non-negligible.'
"Lawrence H. WhiteSenior Fellow at Cato UniversityProfessor of Economics at George Mason University

...I want to add a somewhat tangential but related additional comment: Besides making the debatable quantitative assumption that law-abiding cash use is negligibly small, Sands and Rogoff also make a normative assumption that strongly tilts their seemingly neutral estimates of overall welfare effects. They assume that the welfare of people who use cash for illicit purposes doesn’t count while disrupting their operations by banning large notes is pure benefit to the rest of us... - Lawrence H. White (Jan 26, 2018)

Read full article here

Excerpt from Federal Reserve Bank of San Francisco Understanding Consumer Cash Use paper (28 Nov 2017)
The public’s demand for cash continues to grow as the amount of currency in circulation reached $1.43 trillion in October 2016. In addition, data from the Federal Reserve’s Diary of Consumer Payment Choice (DCPC) shows that cash remains the most frequently used payment instrument accounting for 31 percent of all consumer transactions. Developed by the Federal Reserve Bank of Boston in collaboration with the Federal Reserve Banks of San Francisco and Richmond, this study provides a unique view into consumer shopping and payment decisions, including their use of cash.1 Preliminary analysis of the 2016 DCPC data indicates that:

  • Most consumer payments are for small value transactions, and cash predominates these small value payments. Approximately 60 percent of in-person payments under $10 were made in cash, compared to 20 percent of in-person transactions for $25 or more.
  • Cash is held and used by a large majority of consumers, regardless of age and income; however, how it is used varies across demographic groups.
  • Consumers’ opportunities to use cash are limited to in-person transactions for the most part. In 2016, only 75 percent of all payments were conducted in person
...the results put the use of cash relative to non-cash payment methods by consumers at POS into perspective, and indicate that the use of cash at POS is still widespread in most euro area countries. This seems to challenge the perception that cash is rapidly being replaced by cashless means...'
"p. 3, Esselink, November 2017Abstract from Occasional Paper Series:'The use of cash by households in the euro area'


White, Lawrence H. 'More evidence of the high collateral damage of a war on cash'. Cato Institute. Cato at Library. Electronically published January 26, 2018. Accessed January 30, 2018.

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Last Updated: Mar 16, 2018