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Top economist wants to get rid of large banknotes

High-denomination banknotes make life easier for criminals. More countries should therefore take cue from Denmark and make electronic payments an everyday staple, says American economist.
American economist and professor at Harvard Kenneth Rogoff argues that more electronic payments and fewer banknotes would make the world a better place.

Publiceret: 12.01.2017
Af Peter G. H. Madsen mail

The world would be a better place if there were no banknotes worth more than DKK 100. It would make it much more difficult for criminals to hide their activities from authorities. Furthermore, it would help reduce everything from illegal drug trade and human trafficking to terrorism and tax evasion.

This is the astonishing message from American economist and professor at Harvard Kenneth Rogoff, who is the former chief economist at the International Monetary Fund.

“There’s no doubt that cash plays the lead role in a long line of criminal activities from drug trade to human trafficking, corruption and tax evasion,” Kenneth Rogoff says over the phone from Boston, USA.

“If we can reduce criminality by just a few percentage points by phasing out high-value banknotes, it would be a step in the right
direction.”

See also: €500 notes popular among Danish criminals

The curse of cash

Rogoff’s war on cash is comprehensively described in his new book The Curse of Cash, which has attracted much attention in the United States. Here, many people find the idea of phasing out something as all-American as the 100-dollar bill deeply offensive.

Some consider it a direct attack on their freedom. Others  believe that their everyday lives will become far more difficult if they are unable to carry a smaller fortune in cash on them.

That is also why it is important for Rogoff to emphasise that he does not actually wish to convert to an actual cashless society. The goal is simply to get rid of the largest notes so it becomes more difficult to commit crime.

“It’s important to stand up against those who desire banknotes of even higher value. By far the majority of cash is used for criminality and tax evasion,” says Kenneth Rogoff.   

Billions of banknotes out there

Rogoff’s break with the cash economy may sound strange and slightly outmoded in a country like Denmark where electronic forms of payment such as MobilePay have become an everyday staple.

But fact is that there are still billions of banknotes in circulation around the world. This is not only true in the United States but also in Europe and Denmark.

According to Rogoff, there is $1.34 trillion in cash in circulation in the United States that never enters banks. This is equivalent to every American - old and young alike - having $4,200 stashed under their mattress.

The situation in Europe is not much different. According to the European Central Bank ECB, there were nearly half a billion 500-euro notes in circulation in September 2016, while there are 35.6 million DKK 1,000-notes in circulation in Denmark, according to the central bank of Denmark, Danmarks Nationalbank.

Just because the average citizen is not running around with their wallet full of large amounts of cash, does not mean it is not present in the economy, Rogoff points out.

“My plan of getting rid of the large notes would be of little significance for the majority of regular people, but of great significance for the underground economy where cash is commonly used,” says Rogoff.

He adds that Scandinavia is already far ahead compared to many other countries.

“Denmark has already gone a long way towards becoming a ‘less-cash society’. You’re at least ten years ahead of the United States”, he says.

Denmark has already gone a long way towards becoming a ‘less-cash society’. You’re at least ten years ahead of the United States.
AMERICAN ECONOMIST AND PROFESSOR AT HARVARD KENNETH ROGOFF
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PUBLISHED: 1/12/2017 LAST MODIFIED: 1/12/2017