Posted on 09/17/2016 8:51:54 PM PDT by Tolerance Sucks Rocks
(CNSNews.com) – The Unites States should phase-out all denominations of the U.S. dollar larger than a $10 bill to thwart money launderers and tax evaders, Harvard economist Kenneth Rogoff told attendees at a Council on Foreign Relations event this week in Washington, D.C.
“Cash is not used in ordinary retail transactions. It’s used by tax evaders and in a lot of crime of all types, including drug trafficking, human trafficking, extortion, racketeering, you name it,” said Rogoff, a member of the economic advisory panel of the Federal Reserve Bank of New York and author of The Curse of Cash.
“Cash is being used less and less in ordinary transactions,” Rogoff pointed out, noting that the average middle-class American holds about $150 in cash, compared to more than $100,000 in total assets.
“Cash is nothing,” he said.
Rogoff envisions a gradual phase-out of bills larger than $10 over a 15-to-20 year period “to deal with the unintended consequences” of moving to a cashless economy, and scoffed at those who fear the government would then be able to monitor every transaction.
“If you don’t trust the government and all your money is in cash, you’re pretty stupid,” he said.
According to the Federal Reserve, there were 38.1 billion Federal Reserve notes in circulation last year. An order to print 7.1 billion more in 2017 worth $209 billion has been submitted to the U.S. Bureau of Engraving and Printing. The order includes 2.4 billion $1 bills and 1.5 billion $100 bills.
“There are 11.1 billion $100 bills in circulation, and about 75% of them are held in other countries, in part because the U.S. dollar is the dominant international reserve currency,” according to the Wall St. Journal.
Noting that many of the $100 bills in circulation are used for “illegal activities abroad by Mexican drug lords, Colombian rebels and Russian oligarchs,” Rogoff argued that the “wholesale elimination” of high-denomination bills would mostly affect organized criminals and tax evaders.
“Every transaction inevitably leaves a trail. Cash doesn’t,” he said.
“Big [cash] purchases are dirty money,” the Harvard economist stated. “Cutting crime by 5 percent would be a good trade. And if the government can collect 15 percent of taxes that it is not getting, you could cut everybody’s taxes."
The Nordic countries have already reduced cash transactions to about 5 percent of the total, he noted. The impetus to go cashless in Europe was terrorism. “Something bad could spark things here, too,” he said.
But Dr. Louise Shelley, director of the Terrorism, Transnational Crime and Corruption Center at George Mason University, pointed out that many criminals use “trade-based money laundering,” such as exchanging banned elephant ivory for Chinese imports.
CNSNews.com asked Shelley if eliminating most cash – which Rogoff said he did not recommend for developing markets and emerging economies – would stop terrorist groups and other criminals from laundering money.
“You have to be kidding!” she replied. “They [terrorists] are at the forefront of inventing new methods and refining old methods of trade-based money laundering. Illicit trade has exploded with the Internet.”
In May, Shelley testified before Congress that such illicit trade makes up an estimated 8 to 15 percent of the global economy and “is growing in almost all identified categories,” providing funding for terrorist groups and drug cartels.
“But this illicit trade does not exist in a vacuum. It is supported by banks, it is supported by law firms, it is supported by professional services that write contracts, that develop contracts, and help mask the illicit trade,” she testified.
“You can hide money in a shell corporation in Delaware, no questions asked,” agreed Porter McConnell, director of the Financial Transparency Coalition. “It’s so easy to do. It’s actually quite easy to move billions.”
Criminals and terrorists use phony invoices, inflate prices of intangible intellectual property, and other tricks to launder money, McConnell told CNSNews. “This stuff is such a bigger game than cash. You can’t move billions of dollars in a briefcase.”
Rogoff also argued that reducing the amount of cash would also give the Federal Reserve another monetary policy tool because it would eliminate the current constraints on cutting interest rates.
“My basic take is that it’s a good idea to get rid of big bills, period, over the longer term,” Rogoff said, especially since U.S. banks may follow the lead of Switzerland and Sweden at some point and “effectively use a negative interest rate policy.”
“Cash is in the way because if you charge a relatively large interest rate to hold money,” large institutional depositors such as pension plans and insurance companies “will take it out,” he explained.
“Right now, central banks are at a loss about what to do about monetary policy. European banks are looking at negative interest rates. We need to be able to do something,” he said, adding that “central bankers are doing a lot of things more dangerous, such as buying 20 percent of the corporate bond market in the next round.”
Rogoff added that he was not worried that criminals would just switch to alternative currencies such as gold or Bitcoin (“which is not really anonymous”) if most cash transactions were eliminated.
“There are creative ways to do anything, but you can only use them [alternative currencies] sometimes,” he said. “The government can just say to the banks and retail stores: ‘You can’t take that’,” he explained.
CNSNews asked Rogoff how people could get their money out of a failing bank if large denominations are phased out.
“If the bank wants to give you the money, it can do so with an electronic transfer,” he replied, adding that "we still insure deposits up to $250,000.”
But not everybody at the event was convinced that phasing-out currency was a good idea.
Routine cash-based transactions not only ensure privacy, but protect people from credit card and financial fraud as well as identity theft, Marc Rotenberg, president of the Electronic Privacy Information Center, pointed out, adding that "the greatest abuser of cash is the government, which sent pallets of cash to Iraq to pay out money without accountability."
Related: Terrorism Expert: ‘Radicalized Criminals’ Pose New Terror Threat to Europe, US
Actually, i think it’s time to phase out Harvard Economists.
To claim $100 bills are only used by drug dealers fails to reason why cash is preferable to other forms of payment.
The kingpins will have the money laundered into smaller denominations or cover businesses in order to make their finances legitimate. If larger bills are identified with crime, then the criminals will operate in smaller currencies.
Obama is a product of Harvard. I think I see a trend manifesting the quality of a Harvard education sucks pond water.
I sort of have the opposite view.
I am currently in Vietnam, here all cash transactions are done with paper money. All of it.
I think this is a good system, as well. Just what works, in a particular place, I think.
Why would they want to get rid of the 20? Isn’t Harriet Tubman replacing Jackson? Wouldn’t that be racist? ;)
That's for sure. A few years ago, the only two times I gave someone my card, I got a call a few days later that my card was being used by 'others.' One time it was in Paris but I was in the US.
How would 0bama get pallets full of cash to pay Iran?
Talk about dirty money...
It's great when it works, which is 99.99% of the time. But neither a computer crash, or a court order should leave you destitute, which would be occurrences in a truly cashless society.
I’d rather phase out pennies.
IF you think that ‘social networks’ know too much about people—wait until the government lays out a list of EVERY purchase you have made without using cash.
The electronic cash usage is too intrusive. No one needs to know what I buy to eat or anything else.
WHEN the power grid is attacked in this country-—how are you going to use your debit card for everything???
How about the banks should act as banks and not as snitches for the federales? How about your banking business is your business, your banker’s business and absolutely no one else’s business?
Drug War closed that option decades ago =>
The Bank Secrecy Act of 1970 (or BSA, or otherwise known as the
Currency and Foreign Transactions Reporting Act) requires financial
institutions in the United States to assist U.S. government agencies
to detect and prevent money laundering.
Specifically, the act requires financial institutions to keep records
of cash purchases of negotiable instruments, and file reports of cash
purchases of these negotiable instruments of more than $10,000 (daily
aggregate amount), and to report suspicious activity that might
signify money laundering, tax evasion, or other criminal activities.
http://en.wikipedia.org/wiki/Bank_Secrecy_Act
Cue a photo of a trillion dollar note from some African hellhole.
Without large denomination bills it would require huge wallets to carry the necessary cash for even small cash purchases. The problem will grow worse when inflation makes the dollar have even less purchasing power. With digital purchase the government can easily track what we buy and have even more control over our lives.
The Bank Secrecy Act of 1970, as you describe it, is one more useless nosy, busybody, unnecessary law that ought to be repealed. In fact, it would be a good rule for Congress to live by to require 10 laws to be repealed for each new one enacted and to prohibit "Christmas Tree" bills altogether.
I went back to Cash after my Debit Card failed a few times..
My wallet is empty, too!
Of course, I blame that on my wife...
When I was there there were no 2,000 yen notes. I thought there were 50,000 and 100,000 but I could be wrong.
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