The zero bound, however, is not the issue in India. There, the main focus is the second big argument against cash：that far too much of it is involved in crime. Think for a moment about how much actual physical cash you have. I'm willing to bet you're a long way below the per-capita amount of dollars in circulation in the United States：$4,200 for every man, woman and child in the country. Eighty percent of that is in the form of $100 bills, which many Americans hardly ever see. Where is all this money? The short and very disconcerting answer is that, in Mr. Rogoff's words, “treasuries and central banks simply do not know” where this money is.
Among students of the subject, the assumption is that this cash is overwhelmingly used for activities that evade tax but are otherwise legal (for instance, paying workers, from builders to babysitters, off the books) but also is used for outright crime. The “underreporting business income by individuals who conduct a significant share of their transactions in cash” is, Rogoff reports, the single biggest contributor to the “tax gap,” the approximately $500 billion annual difference between federal tax voluntarily paid and tax due. The numbers for untaxed criminal transactions are huge, too. One example：Business in the United States for the four main drugs - heroin, cocaine, marijuana and methamphetamine - is worth $100 billion a year, almost all of it carried out in cash.
A million dollars in $100 bills weighs 22 pound and can fit in a shopping bag. Imagine that proposal to phase out high-denomination notes was implemented in the United States. If the highest-denomination note were $1, that million bucks would weigh 10 timer as much, take up a 10 times as much space and be a lot harder to hide - and how many legal activities would be disadvantaged as a result?
This is why Mr. Modi went after cash：The idea was to crack down on what he calls “black money,” a term encompassing tax evasion and all forms of crime up to and including the use of counterfeit currency to fund terrorism.
This Indian experiment is far from over yet, and the initial chaos may well yield to an outcome that feels as if it was worth for the trouble. As of late December, it was estimated that nearly 15 trillion rupees had been deposited in banks, out of a total 15.4 trillion rupees outstanding, meaning that 97 percent of the relevant cash was now legal ane in the system, an outcome that no doubt exceeds expectation.
I wonder, though, about the wisdom of the anti-cash crusade. The problem with the argument is that it concedes too much power to the modern triple-headed monster of the economy - the state, the central bank and the banking system. If there is no cash, there is nowhere for private citizen to hide any assets at all, not just for criminal reasons but simply for financial security. The year 2008 was a reminder of how fragile our banking system is and how all-encompassing a financial crisis can be.
The rich have many ways of hiding assets and making them safe from states and from tax authorities. As we've recently been reminded, some very rich people don't pay any income tax at all. Cash is one of the few ways in which ordinary citizens can enjoy a tiny taste of the freedom, privacy and security that the rich take as their due.
That, for me, is what's missing in the critique of cash. If there were to be a big, convincing, systemwide drive to tax the hidden assets of the rich - well, then maybe we can start to talk about abolishing cash.
Until then, we would do well to bear in mind a favorite line of pro-cash lobby, Dostoyevsky's observation from a czarist prison：“Money,” he wrote, “is coined liberty.”
