Costs and Benefits to Phasing Out Paper Currency

Kenneth S. Rogoff

NBER Working Paper No. 20126
Issued in May 2014
NBER Program(s):Monetary Economics Program

Despite advances in transactions technologies, paper currency still constitutes a notable percentage of the money supply in most countries. For example, it constitutes roughly 10% of the US Federal Reserve's main monetary aggregate, M2. Yet, it has important drawbacks. First, it can help facilitate activity in the underground (tax-evading) and illegal economy. Second, its existence creates the artifact of the zero bound on the nominal interest rate. On the other hand, the enduring popularity of paper currency generates many benefits, including substantial seigniorage revenue. This paper explores some of the issues associated with phasing out paper currency, especially large-denomination notes.

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Document Object Identifier (DOI): 10.3386/w20126

Published: Costs and Benefits to Phasing out Paper Currency, Kenneth Rogoff. in NBER Macroeconomics Annual 2014, Volume 29, Parker and Woodford. 2015

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