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Costs and Benefits to Phasing out Paper Currency

In: NBER Macroeconomics Annual 2014, Volume 29

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  • Kenneth Rogoff

Abstract

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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Suggested Citation

  • Kenneth Rogoff, 2014. "Costs and Benefits to Phasing out Paper Currency," NBER Chapters, in: NBER Macroeconomics Annual 2014, Volume 29, pages 445-456, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:13431
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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