The war on cash

Beretta, Edoardo; Neuberger, Doris

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Journal article

The war on cash : institutional hostility and Covid-19

Beretta, Edoardo ORCID Facoltà di scienze economiche, Università della Svizzera italiana, Svizzera
Neuberger, Doris University of Rostock, Germany

2021

Published in:

The Cato Journal. - 2021, vol. 41, no. 3, p. 593-620

English There is significant economic literature investigating the hostility to cash or “war on cash” (Beretta 2005, 2007; Deutsche Bundesbank 2017; Jain 2017; Scott 2013; White 2018) by which financial institutions supported by governments discourage individuals from using (publicly issued) physical means of payments and convince them to move to digital (privately issued) ones. Banks, in particular, have a strong incentive to move directly to electronic payment systems (Spar 2003: 413). The term “war” might sound like “a polemical exaggeration” (Rogoff 2017), but there is little doubt that “persuasion work” by those who want to replace cash with digital currency is prevalent (Nagata 2019). In a “bankful society,” banks (or platforms built on top of them like PayPal) intermediate even small payments. The Covid-19 pandemic has given digitization a boost through physical lockdowns and fear that physical cash may help spread the virus (see Klein 2020a). This article examines the influence of both the financial sector and governments on cash aversion prior to and after the outbreak of the pandemic. We argue that cash has been unjustifiably accused of facilitating illicit transactions; the Covid-19 pandemic has been misused to push individuals away from banknotes and coins; and cash is even more welfare enhancing in troubled economic times. After a review of “instruments of convincement” used before the current pandemic, we show that since the pandemic hostility to cash has continued. We conclude by explaining why cash remains essential.

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