Given the still subdued economic growth many experts are of the view that the presence of cash has constrained central banks from setting negative rates to stimulate a subdued economic activity. In a future economic or financial crisis, current low rates would restrict the effectiveness of monetary policy, so it is held.
The presence of cash it is argued prevents the central banks from lowering policy rates to a level, which is going to meaningfully revive economic activity. What prevents the dramatic lowering of rates is that this is going to severely hurt savers who keep their cash in various bank accounts and this is seen as politically unacceptable.
The abolishment of cash it is held is going to enhance the ability of the central banks to use negative rates (perhaps as low as minus 5 per cent per year) and this would provide central banks with additional flexibility and tools to deal with a slowdown.
Would the abolishing of cash promote economic growth?
By advocating the abolishment of cash, many experts are implying that cash can be replaced by electronic money. We hold that electronic money can function only as long as individuals know that they can convert it into fiat money, i.e. cash on demand (see, e.g., Lawrence H. White “The Technology Revolution and Monetary Evolution,” Cato Institute’s 14th annual monetary conference, May 23, 1996).
Without a frame of reference or a yardstick, the introduction of new forms of settling transactions is not possible.
Money emerged out of barter conditions to permit more complex forms of trade and economic calculation. The distinguishing characteristic of money is that it is the general medium of exchange, evolved from private enterprise from the most marketable commodity. On this Mises wrote,
…click on the above link to read the rest of the article…
