CAPITALISM WITHOUT CASH? “We are so screwed,” Steve Green writes:

One obvious side effect of negative rates is that people would withdraw money from their banks and hold cash. That practical problem means that it is very difficult for banks to push a “real” interest rate on consumers past about -0.5%. Once the negative penalty starts to bite, people just hold bank notes which don’t cost fees.

So how could banks force people to spend hard cash? Ken Rogoff of Harvard University has suggested banning cash altogether. According to the Economist:

Ken Rogoff of Harvard University calculates that there is $4,000 of currency in circulation for every person in America. Much of it is used to hide transactions from tax authorities or the police. Abolishing it would curb such activities, as well as helping central bankers.

Alternatively, Gregory Mankiw, also of Harvard, has made a tongue in cheek suggestion that the Fed hold a lottery in which it periodically declares that notes with serial numbers ending in a given number from 0-9 suddenly be declared worthless. In that scenario, the expect return of holding any notes would be -10%.

What could go wrong?