summarize text each 150 words

This is not a scholarly publication and this article was not peer reviewed by experts.

The author of this article is Kenneth Rogoff. His background and qualifications may be important when evaluating the reliability of this text;

Kenneth Rogoff is professor of economics and public policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics

(Rogoff, 2016, para. 15)

768 words

<K2 – 81.8

FK grade level – 9.8

FL reading ease – 50.4

Why cash isn’t king any more

GLOSSARY

Adapted from;

Rogoff, K. (2016, September 5). Why cash isn’t king any more. The Guardian. Retrieved from https://www.theguardian.com/business/2016/sep/05/why-cash-isnt-king-any-more

bill (n) note (n); paper money e.g. The UAE has 5 dirham, 10 dirham, 20 dirham and 50 dirham bills/notes.

cash (n); paper money and coins e.g. How would you like to pay – credit card, cheque or cash?

central bank (n); the national bank – the bank which controls the country’s cash and

currency (n); money – the dollar, the pound, the yen, the dirham and the euro are examples of different currencies

denomination (n); the size of a bank note – e.g. When I get cash from the bank, I prefer to get small denomination notes - 10 dirham, 20 dirham and 50 dirham – larger denomination notes such as the 500 dirham note can be difficult to use at the shops.

evade (v) evasion (n); to avoid something, to escape from something e.g. Tax evasion is a serious crime. If you do not pay your tax, you could go to prison.

extortion (n); forcing somebody to give you money – for example by threatening violence

facilitate (v); to make something easer, to allow or help something to happen e.g. The thief was sent to prison for 3 years after the robbery. However, the security guard facilitated the robbery by leaving the door open and switching off the security cameras so he was given a 1-year prison sentence.

transaction (n); buying or selling something e.g. Buying a house is probably the biggest transaction most people make in their lives.

tax (n); money which must be paid to the government; tax may be a percentage of what you pay for something when you buy it (sales tax / value added tax) or it may be part of your salary and income (income tax) e.g. The UAE government does not collect income tax at the moment. However, sales tax in the UAE is currently 5%.

The world is full of paper currency, with major country central banks producing hundreds of billions of dollars’ worth each year, mainly in very large denomination notes such as the $100 bill. The $100 bill accounts for almost 80% of the US’s cash and for every person in the US, there are $4,200 of cash in circulation. The ¥10,000 note (about $100) accounts for roughly 90% of all Japan’s currency, where per-person cash holdings are almost $7,000. This cash is facilitating economic growth – however, this growth is mainly in the underground economy, not the legal one. A cashless society is neither practical nor desirable anytime soon. However, a less-cash society would be a fairer and safer place.

With the growth of debit cards, electronic transfers, and mobile payments, the use of cash has long been declining in the legal economy, especially for medium and large-size transactions. Central bank surveys show that only a small percentage of large-denomination notes are being held and used by ordinary people or businesses.

Cash facilitates crime because it is anonymous, and big bills are especially problematic because they are so easy to carry and hide. A million dollars in $100 notes fits into a briefcase, a million dollars in €500 notes (each worth about $565) fits into a purse.

There are plenty of ways to bribe officials, engage in financial crime, and evade taxes without cash. However, most of these involve very high transaction costs (for example, uncut diamonds), or risk of getting caught (say, bank transfers or credit card payments).

It is true that newer virtual currencies such as Bitcoin are very difficult to trace. However, their value rises and falls sharply and governments have many tools with which they can restrict their use – for example, by preventing them from being used at banks or retail stores. Cash, on the other hand, is accepted everywhere.

The costs of tax evasion alone are enormous, perhaps $700 billion per year in the United States and even more in high-tax Europe. Crime and corruption, though difficult to quantify, almost bring greater costs both to governments and societies. Think not just of illegal drugs, but also of human trafficking, terrorism, and extortion. Moreover, cash payments by employers to undocumented workers encourage illegal immigration. Cutting down the use of cash is a far kinder way to limit immigration than building walls or fences to keep people out.

Governments are aware of the profits they make by printing paper currency but may not consider the costs. Recently, however, there have been some signs that this is changing. The European Central Bank recently announced that it will phase out its €500 mega-note, despite complaints from Germany and Austria, where cash transactions are still popular. Countries in northern Europe have generally cut down the use of cash more than those in the south. In southern Europe, where cash is still popular, governments are aware that they are losing tax revenue because of “invisible” cash transactions and have been acting. For example, Greece and Italy have been trying to discourage cash use by setting a maximum for retail cash purchases (at €1,500 and €1,000, respectively).

Obviously, cash remains important for small everyday transactions, and for protecting privacy. Northern European central bankers who argue for the continued of cash like to quote Russian novelist Fyodor Dostoevsky: “Money is coined liberty.” They have a point. The question is whether the current system has the balance right. I would argue that it clearly does not.

A plan for cutting back the use of paper currency should be guided by three principles. First, it is important to allow ordinary citizens to continue using cash for convenience and to make reasonable-size anonymous purchases, while at the same time making it difficult for those who use cash to make large, repeated anonymous transactions. Second, any plan should move very gradually – changes could take a decade or two - to allow adaptations and mid-course corrections as unexpected problems arise. Third, reforms must be sensitive to the needs of low-income households, especially people who do not have bank accounts. These households could be supported by offering free debit bank accounts, which could also be used to make government transfer payments. This last step is one that some countries, such as Denmark and Sweden, have already taken.

Scaling back paper currency would hardly end crime and tax evasion; but it would make illegal transactions in the underground economy riskier and more difficult. Cash may seem like a small, unimportant thing in today’s high-tech financial world, but the benefits of phasing out most paper currency are considerably larger than you might think.