Smuggled into Rogoff's proposal to axe cash is the privatisation of the currency. Let's cling on to our notes, until publicly accountable central banks are ready to create digital reddiesby Fran Boait / September 15, 2016 / Leave a comment
Published in October 2016 issue of Prospect Magazine
The proposal to abolish cash has a certain superficial appeal, but—even before we get to the myriad practical problems—it could turn out to smuggle in a dangerous agenda of stealth privatisation. Kenneth Rogoff’s argument that we can simply abolish physical cash and switch to using electronic money, completely misses one crucial difference between the two—the institutions that create them.
“Electronic money”—that is, the numbers in your bank account, which change every time you spend on a debit card—are not fully equivalent to physical cash. They’re actually IOUs, or deposits created by banks when they issue loans. As the Bank of England recently confirmed: “Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created.”