Costs and Benefits to Phasing Out Paper Currency

17 Pages Posted: 19 May 2014  

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 2014

Abstract

Despite advances in transactions technologies, paper currency still constitutes a notable percentage of the money supply in most countries. For example, it constitutes roughly 10% of the US Federal Reserve's main monetary aggregate, M2. Yet, it has important drawbacks. First, it can help facilitate activity in the underground (tax-evading) and illegal economy. Second, its existence creates the artifact of the zero bound on the nominal interest rate. On the other hand, the enduring popularity of paper currency generates many benefits, including substantial seigniorage revenue. This paper explores some of the issues associated with phasing out paper currency, especially large-denomination notes.

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Suggested Citation

Rogoff, Kenneth, Costs and Benefits to Phasing Out Paper Currency (May 2014). NBER Working Paper No. w20126. Available at SSRN: https://ssrn.com/abstract=2438547

Kenneth S. Rogoff (Contact Author)

Harvard University - Department of Economics ( email )

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