Kevin Dowd, one of the early proponents of using futures markets in monetary policy, has a new paper on the (global) war on cash:
One of the most significant but least noticed developments in recent years has been a gradually escalating government war against cash: in fact, this war has already escalated to the point where the abolition of cash is now a very real possibility. At first sight, one might think that there is nothing too much to worry about: we are merely talking about technocratic issues related to payments technologies and the implementation of monetary policy, and cashless payments systems are already both commonplace and spreading. The reality is rather different: the issues at stake are of the most profound importance. The abolition of cash threatens to destroy what is left of our privacy and our freedom: we wouldn’t be able to buy a stick of gum without the government knowing about it. Besides making us all entirely dependent on the whim of the state, it would also undermine economic prosperity and literally devastate the extreme poor. Quite simply, the government’s war against cash is the state’s war against us.
The proposal to abolish cash has been supported by a number of prominent economists, including Harvard economist Ken Rogoff, Citi chief economist Willem Buiter, Paul Krugman, and Peter Bofinger, a member of the German Council of Economic Experts. Then, on September 18th, in a speech to the Portadown Chamber of Commerce in Northern Ireland, another prominent economist – Andy Haldane, the chief economist of the Bank of England – announced that he too was in favour of abolishing cash.
I don’t agree with all of Kevin’s views on monetary policy, but the second half of the paper (which criticized proposals to abolish cash) is excellent. Unfortunately, I expect that we will lose this battle. We are moving toward a “1984” type society, and it’s very clear that the public (on both the left and the right) is willing to trade in our freedom for the illusion of protection against all those scary “terrorists” in our midst. The good news is that I won’t live long enough to see currency abolished—it’s still several decades away in the US.
On other topics, we saw another strong jobs report today. I wonder if I am reading the linked document correctly. It seems to suggest that we saw a huge upsurge in the number of people holding two jobs in 2015. Is that correct? With powerful growth in jobs during Q4, and anemic growth in output, expect more horrible productivity numbers ahead. The Great Stagnation continues, and it’s not a demand-side phenomenon.
Let me also address some comments I have received about China. I’m certainly no expert on the Chinese economy, but from the outside it seems like they have an excessively tight money policy and an excessively easy credit policy. And indeed these two failures are related. To ease monetary policy they’d have to let the yuan depreciate significantly (although not the 30% figure you see tossed around.) But they are not (yet) willing to do this. So instead they’ve run an expansionary credit policy, piling up debt. I think they’d be better off with a tight credit policy and an easier monetary policy–say 7% NGDP growth for 2016. Under current policy, there may well be a debt crisis at some point during the next decade.