17 Pages Posted: 19 May 2014
Date Written: May 2014
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: 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