Getting rid of much of the cash in circulation might be an effective way to reduce inequality.
The world's poor stand to be among the "biggest beneficiaries" of the changes that would follow should cash become almost obsolete, according to Kenneth Rogoff, a Harvard economy professor and the author of The Curse of Cash.
Benefits include less crime and a reduction in the kind of off-the-books labour that hurts society’s weakest members. But weaning societies off cash requires the right infrastructure, and here there’s inspiration to be found in Scandinavia, a region that Rogoff says is at “the cutting edge” of the cashless experiment.
The Nordic nations all rank among the least corrupt and most transparent in the world. Cash accounts for less than 5 per cent of the money in circulation, making them the least cash-reliant group of countries on the planet.
“If you do financial inclusion the way you’ve done it in Denmark for example, where you give everyone free debit cards, it would help a lot of problems,” Rogoff said in an interview in Copenhagen on Thursday, after speaking at a Skagen Funds conference. “I think the poor would be among the biggest beneficiaries.”
Rogoff, who has also worked as an adviser to the Swedish central bank, says he’s picked up “a lot of nuances and ideas” on how near cashlessness works from visiting the Nordic countries. The region, which pioneered negative interest rates and boasts the world’s highest income equality levels, provided some of the inspiration for Rogoff’s ideas on how societies might function with hardly any paper money, he said.
Stopped accepting cash
Dodging the tax man is virtually impossible in the Nordic region, and digitisation is fairly ubiquitous. Some places, such as Sweden’s Abba museum, have stopped accepting cash altogether. Scandinavia’s efforts to rely less on cash have been gradual, and backed by a well-functioning digital economy. A larger experiment in India has proved considerably rockier.
Prime minister Narendra Modi in November invalidated 86 per cent of circulated currency in order to curb the black economy. Despite sudden chaos and long bank lines, the shock ban remains popular with India’s poor, who think it will hit rich tax evaders. The social impact of going cashless would also extend into other spheres such as immigration, Rogoff said. Illegal labour immigration into the US and elsewhere is “a creature of cash” allowing large-scale employers to pay their workforce without the scrutiny of the authorities, he said.
Rogoff doesn’t advocate for a complete end to cash. The world still needs a back-up in case of disruptions such as power outages, while private people should be allowed the privacy to “buy their mistress a $20 item” without anyone being able to tell, he said.
“Cash is still very dominant in small transactions,” he said. “So I think people are getting ahead of themselves on where the Scandinavian countries are.”
–(Bloomberg)
