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Wednesday, August 06, 2014

'Has Paper Money Outlived Its Purpose?'

Cecchetti & Schoenholtz:

Has paper money outlived its purpose? : Serious people have been suggesting that we think hard about eliminating paper currency. Paper money facilitates criminality and creates the zero lower bound (ZLB) for nominal interest rates. So, why not just get rid of it and replace it with electronic money? ...

Their bottom line:

All of this leads us to conclude that paper currency is at the heart of how we choose to organize our society. In a free society, criminality may be part of the price we pay for liberty. There are means other than eliminating cash – less effective but also less threatening to personal liberties – to expose the shadow economy. And, as the recent financial crisis has shown, central banks do have policy alternatives when the short-term interest rate hits zero.

    Posted by on Wednesday, August 6, 2014 at 08:15 AM in Economics | Permalink  Comments (15)


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