In my upcoming book Monetary Kaleidics, I cover the “War on Cash” which has been occurring under the radar for years. Virtually no one has seemed to notice this assault on physical currency by governments around the world, other than the libertarian movement. This is no conspiracy theory, it has already occurred to a small extent:

Some prominent economists, including Rogoff and former US Treasury Secretary Lawrence Summers, have advocated phasing out high-denomination paper currency to discourage tax evasion and other forms of corruption. India and euro area countries have done just that in recent years: the Reserve Bank of India withdrew the 500 and 1,000 rupee bills from circulation and stripped them of their status as legal tender in 2016, with disruptive effects, while the European Central Bank stopped producing and issuing the 500 euro note in early 2019.

A recent paper by the International Monetary Fund (IMF) shows how the $100 dollar bill is now the most widely circulated U.S. note. The truth is, 80 percent of $100 bills are held outside the U.S., and 60 percent of all physical notes are as well. Economist Kenneth Rogoff from Harvard University claims that the major reason for this is criminal activity such as money laundering and human trafficking. But there is something I noticed when reading more about it:

With increasing digitalization of payment systems in recent years, Kyriakos-Saad says, concerns about traceability could be a factor. But it’s incorrect to always associate cash with corruption, he says. “There’s this lingering desire for privacy, and desire for anonymity, which can be entirely legitimate.” And this anonymity is precisely what makes cash usage patterns so challenging to understand.

This seems obvious enough, at least to libertarians. But it goes on:

Rogoff adds that there may be another factor at play: “Underground demand for paper currency has been surely rising in part because interest rates and inflation are exceptionally low.” But why the dollar? Other countries have currencies used abroad. “We think that the significance of foreign demand is unique to the dollar,” Judson said. “Other currencies are also used outside their home countries, but as far as we can tell, the dollar has the largest share of notes held outside the country.” The dollar’s role as the dominant international reserve currency may be the key, according to Rogoff. “The dollar is now the only global currency; the euro has stalled, and the renminbi is decades away from challenging,” he says.

We look at interest rates as the opportunity cost of holding money in physical form. When interest rates rise, that opportunity cost rises since we can earn a higher return by keeping it in an account at our banks. When interest rates fall, that cost falls as well. This is important because these economists also propose using negative interest rates in the future. So with both the elimination of cash, particularly large denominations, and negative interest rates, what does this mean for holders of those dollars?

Will they lose out? Or is this an opportunity to actually profit from holding physical currency at a time when our digital dollars held in our bank accounts will be devalued, taxed, and siphoned away with bank fees in which we cannot escape since we cannot withdrawal physical currency by law? And if interest rates are an opportunity cost of holding physical cash, then those who possess these high denominations of dollars will likely have more buying power than those who rely strictly on digital transactions. Perhaps physical dollars and digital dollars will be recognized as two distinct mediums of exchange. If that’s the case, then perhaps there is a great benefit to holding some cash instead of electronic deposits.

-This article appeared on Mises.org