Kenneth Rogoff

Cursed Cash and Central Banking

Kenneth Rogoff, Harvard University professor, speaks during an interview in Hong Kong, China, on Tuesday, July 6, 2010. China's property market is beginning a "collapse" that will hit the nation's banking system, Rogoff said. Photographer: Jerome Favre/Bloomberg *** Local Caption *** Kenneth Rogoff
Kenneth Rogoff, Harvard University professor, doesn't want cash to be used beyond the occasional Starbucks coffee.
  • Why it matters

    Why it matters

    The economist says removing cash from circulation would allow central banks to force consumers to spend more money, reviving struggling economies in the process.

  • Facts


    • The European Central Bank has lowered its interest rate on bank reserves into negative territory in a bid to force banks to lend out the money.
    • The prevalence of cash means households can simply hoard their money rather than suffer from negative interest rates.
    • Germany still relies on cash more than any other industrial nation. Only about one in five transactions are done by credit card.
  • Audio


  • Pdf

Kenneth Rogoff has been making a simple argument now for the better part of two decades now: It’s time to stop using cash.

To be more exact, he wants banks to keep your money for you. Hiding dollar or euro bills under your mattress should no longer be an option. Nor should large bills be used by criminals or for large under-the-table purchases that avoid taxes.

It’s a radical answer to the realities of today’s economy, made by a Harvard economist who rose to fame in the last decade with his 2009 book “This Time is Different,” which sought to explain why financial crises just keep happening throughout history.

Mr. Rogoff’s latest book, “The Curse of Cash,” lays out exactly why he thinks it’s time for paper money to end. The book has been out for a few weeks. But this Friday it will have a key test: A German version will appear on the market.

It’s kind of like entering the lion’s den. In Germany, cash is still king.

“Cash is crippling monetary policy...Right now we're using the medication at a subclinical dose. It's not working, but we're feeling the side effects anyway.”

Kenneth Rogoff, Harvard University Economist

Less than 20 percent of all transactions in Europe’s largest economy are done by credit or debit card. Many restaurants and bars still refuse to accept cards at all. Households also tend to save more of their monthly paycheck for a rainy day, and invest heavily in things like pensions and life insurance, both of which have been hit hard by the ECB’s efforts to push interest rates to record lows.

None of that deters Mr. Rogoff, who argued that the only place where cash is truly king these days is among crime syndicates or tax evaders.

“In the drug trade or human trafficking, cash is king. Also terrorists rely on undocumented money flows,” he told Handelsblatt in an interview.

That’s not to mention shady tax dealings like, say, paying your nanny with cash. Mr. Rogoff said he estimates about 15-20 percent of tax revenue is lost to tax evasion.

It’s not as if Mr. Rogoff wants to abolish cash completely. His suggestion is to get rid of all notes above 10 dollars or euros. That’s enough money to still buy yourself a cup of coffee at Starbucks, but not to pay cash, say, for a $60,000 car.

It’s an argument that has been winning some support, even in cash-heavy Germany. The federal government supports an upper limit to cash transactions of around €5,000, though it is pushing for an E.U.-wide decision. The European Central Bank has also already moved to take €500 notes out of circulation. A poll conducted by Handelsblatt earlier this week found that a narrow majority of Germany’s 16 states support the move to better fight money laundering.

Not everyone agrees, however. The move is opposed by many conservative politicians, as well as the Bundesbank, Germany’s central bank. The Friedrich-Naumann-Stiftung, a think tank allied with the free-market FDP party, issued a study this week suggesting that abolishing cash would have little real effect on fighting crime. Other studies have suggested the opposite, though the numbers have been questioned. Opinion polls have found that many households also still consider paying in cash to be safer than paying by card (see graphic below).


The Advantages of Money-cash card electric pin 01


Abolishing cash could also theoretically give the government, banks and companies control over purchases because without cash it would be difficult to buy illegal products in secrecy.

“The issue of marijuana often comes up. In the U.S. anti-marijuana laws are hardly enforced because the trade is hard to trace,” he said. “If we get rid of cash and that changes, we must be honest with ourselves. Do we still want to ban marijuana or not? Not enforcing existing laws only benefits criminals.”

But there’s an even bigger reason that Mr. Rogoff says now is the time for cash to be resigned to the dust heap. The U.S. economist believes that ending cash would allow central banks to better do their jobs.

“Cash is crippling monetary policy,” Mr. Rogoff told Handelsblatt.

Take the European Central Bank, for example. The Frankfurt-based guardian of monetary policy in the euro zone has been trying for the past year to push interest rates into negative territory. It basically wants to charge people that hold onto money rather than spend it.

The idea is to force households to spend instead of save, thereby boosting Europe’s still-flagging economy. But with hoarding cash still an option, only a few banks have dared to pass on the ECB’s negative rates to customers. How to charge households if we can simply hide our money under the mattress instead? Even some banks have been moving to hoard cash to avoid paying the ECB’s interest fees.

This game has made the European Central Bank a bogeyman of sorts for many Germans. Economists here have been laying into the central bank for years, arguing that keeping interest rates at record lows are distorting the marketplace and rendering German households’ hard-won savings worthless. The Bundesbank has often led the charge.

In a way, Mr. Rogoff agrees. He argued that monetary policy as it is being done now is fraught with danger – not because interest rates should go up, as some German economists argue, but because they need to be pushed down further.

“Right now we’re using the medication at a sub-clinical dose. It’s not working, but we’re feeling the side effects anyway,” he said.


078 ECB - WTB Mario Draghi euro zone 2015 Neu 2016-04-14-01


In Mr. Rogoff’s view, abolishing cash would allow the ECB to actually push interest rates into negative territory. There might be short-term pain, but forcing more consumers to spend their money would mean pushing the economy out of recession more quickly. In the end, that could even be a “blessing” for savers, he said, because longer-term investments would actually be better protected.

“Short term interest rates would fall, but long term rates would rise as markets would expect a faster recovery,” he said.

That’s better than the kind of no-man’s land Europe finds itself in now, suffering from a sluggish economy that could carry on for another decade if left unchecked. He points to Japan’s decades-long battle with deflation as a warning sign.

“Japan has been fighting deflation for decades now. Without the zero lower-bound, a recession could be over within a year or so,” he said.

That’s still unlikely to convince too many Germans. Aside from their well-known skepticism of the ECB, protecting privacy is another key reason that many here oppose abolishing cash. Issues like data privacy have long been a greater public concern than in the United States.

“Limiting cash transactions amounts to a serious attack on the freedom of citizens,” Ralph Brinkhaus, a deputy floor leader of Chancellor Angela Merkel’s party, said recently.

Mr. Rogoff said that’s a false argument. Banks already have a wealth of digital data on households. Getting rid of a few notes isn’t going to change that fact.


Alexander Demling is a Handelsblatt correspondent based in Frankfurt. Christopher Cermak is an editor covering finance for Handelsblatt Global Edition based in Berlin. Frank Drost of Handelsblatt contributed to this story. To contact the authors: and

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!