Former Treasury Secretary Larry Summers has come out in favor of eliminating the $100 bill. Following on the European Central Bank’s decision to scrap the €500 note, it is clear that the international war on cash is about to intensify. In the United States the lowest coin denominations, the penny, and nickel are increasingly devalued by inflation and likely to be eliminated in the near future. With the highest denomination bills now facing scrutiny as well, cash is under attack from both ends. As usual, the opponents of cash trot out the usual bogeymen in attacking the use of cash. Summers refers to Luxemburg as one of the defenders of the €500 note, characterizing the country as one “giving comfort to tax evaders, money launderers, and other proponents of bank secrecy…” God forbid we peons should be allowed to keep our money safe from the greedy hands of government officials. The real purpose of the war on cash is not to combat criminals or terrorists but to ease the government’s ability to plunder its citizenry.
Do not forget either that much of the decried “criminal” activity discussed with respect to the use of cash is criminal not because it is inherently wrong but because governments have declared it so. Money laundering itself has only been a federal crime since 1986, and reporting to the government of large cash transactions and suspected money laundering has only been required since the Bank Secrecy Act of 1970. Inevitably, this criminalization of ancillary conduct has ensnared many innocent people. But that isn’t a bug, it’s a feature. The $10,000 cash reporting threshold in 1970 is equivalent to over $60,000 today, meaning that as the dollar continues to be devalued through inflation, more and more cash transactions will be reported to the government by banks. Criminals, as always, will find ways around any new restrictions on cash use while innocents will be forced to suffer the new burdens placed upon them.
The arguments that Summers makes against high-denomination banknotes are incredibly weak.
The fact that — as Sands points out — in certain circles the 500 euro note is known as the “Bin Laden” confirms the arguments against it.
Wow, really? Because Osama bin Laden was alleged to have used €500 euro notes and some people therefore refere to them as Bin Ladens, that’s grounds for banning them? Sands is Peter Sands, who authored a paper Summers references in his op-ed. That paper’s arguments don’t contain much more substance than Summers himself.
High denomination notes are arguably an anachronism in a modern economy given the availability and effectiveness of electronic payment alternatives. They play little role in the functioning of the legitimate economy, yet a crucial role in the underground economy.
There is an obvious value judgment on display here with nothing to back it up. Why do large-denomination notes play little role in the functioning of a “legitimate” economy? Because governments have so demonized the usage of large-denomination notes that anyone who uses them is immediately assumed to be engaged in some sort of shady activity. Anyone who has ever received a cash gift of a $100 bill from family members has to immediately start thinking about what to buy with it and where to use it, lest they be suspected of drug dealing or counterfeiting. Either that or take it straight to the bank and deposit it since many stores might even refuse to accept $100 bills.
The other “problems”, such as drug trafficking and money laundering, that those who want to ban cash point to are all effects of government action. Want to eliminate drug trafficking? Legalize drugs. Want to eliminate human trafficking? Make it easier for people to cross borders legally. Want to eliminate corruption and bribery among government officials? Don’t give them so much power that it’s worth someone’s while to bribe them. Want to stop tax evasion? Stop stealing so much of people’s money. Want to stop money laundering? Stop criminalizing consensual business transactions. Want to stop terrorist financing? Don’t let the CIA create dozens of guerilla groups around the world in pursuit of short-sighted, short-term foreign policy actions.
But perhaps it’s too much to expect people from Harvard to acknowledge that government policies are behind most of the problems in the world and that governments therefore are incapable of coming up with solutions. If you start out with the premise that only government action can solve problems then the only solutions you’ll come up with are those that involve more heavy-handed government action. These people truly believe that if their policy proposals intend to target criminal activity that only criminals will be affected, completely disregarding the negative effects and inevitable mission creep of previous legislative, regulatory, and administrative attempts to combat newly-created crimes.
Rather than thinking outside the very little teeny tiny box that academic elites have crammed themselves into, it’s far easier for those academics to go with what they know and engage in self-serving and circular arguments. Not surprisingly, governments will then cite these types of papers and studies as additional supporting arguments in their war on cash. Given how quickly the European Central Bank was able to axe the €500 euro note, the $100 bill may not have much life left. You might want to start hoarding those Benjamins while you still can.