Kenneth Rogoff: Australia contemplates moving to a less cash society

RogoffToday in our blog series by Kenneth Rogoff, author of The Curse of Cash, Rogoff discusses Australia’s exploration of a less-cash society. Read other posts in the series here.

Recently, the Australian government stirred up a great deal of controversy by announcing the formation of task force to study the role of cash in the underground or “black” economy. There is no suggestion of an impetuous overnight change a la India, but rather a slow deliberative process. (For a recent review of The Curse of Cash with a special focus on the Indian context, see Businessline). Among other ideas, the task force is going to consider phasing out the Australian $100 bill (and presumably eventually the $50 in due time). It will also contemplate restrictions on the maximum size of cash purchases (as France, Italy, Spain, Greece and other European countries have done), and to wire cash registers to transmit sales information directly to the Treasury, as countries such as Sweden have done. According to the Minister for Revenue and Financial Services, Kelly O’Dwyer, the taskforce will have the full cooperation of the Federal police, immigration authorities, the Reserve Bank of Australia and financial regulators.

Of course, the issues with paper currency and how to mitigate them are the main topic of The Curse of Cash, which also provides historical context, data and institutional detail an an economic analysis of the issues. Australia is in many ways a very typical advanced economy when it comes to cash, with huge amounts of cash outstanding and unaccounted for, and mostly in the form of very large denomination notes. Roughly 93% of the Australian paper currency supply is in the form of $100 and $50 dollar bills (versus, say, 85% for the United States, and just over 90% for bills over 50 euro in the Euro area).

(Updated from The Curse of Cash, which goes through end 2015, when large notes constituted 92% of the money supply; all the data and figures for the book are posted here).

With 328 million $100s in circulation and 643 million $50s, there are roughly 14 $100 dollar bills for every man, woman and child in Australia, and roughly 27 $50s. As elsewhere, only a small fraction of these are accounted for.

Overall, the value of cash in circulation (70 billion Australian dollars) is a little over 4% of GDP, which puts Australia in the mainstream of advanced economies, about on par with the UK and Canada, and similar to the United States if USD held abroad are excluded. (See Figure 3.4 in The Curse of Cash).   

As in the US, cash is widely used for small transactions in Australia, accounting for 70% of transactions under $20 according to an April 2016 report by the Australian National Audit office in April 2016. But as in the United States, the importance of cash drops sharply for larger transactions – and that is even considering money washing back from the black economy into retail transactions. (See Figure 4.2 in The Curse of Cash).

Predictably, the Australian government announcement met with the usual tirades that equate getting rid of the large denomination notes with going cashless. This is polemic nonsense, readers of my book will know; I have also discussed the fundamental distinction in my blogs. Any legal fully tax-compliant transaction that ordinary citizens want to engage in can be executed easily enough with $20 bills (or even $10 bills), up to very large amounts. And smaller bills are also more than sufficient to satisfy ordinary people’s needs for privacy, the loss of big bills is a far greater detriment to those engaged in tax evasion and crime. Another strand of nonsense is that there must be better ways to increase tax compliance, such as lowering tax rates. (We can recall this from James Grant’s broadside rant in the Wall Street Journal.) Of course it would be good to improve the tax system, but tax evasion is always going to be an issue, and so will enforcement. And to the extent the government can collect a larger share of what it is owed from people who now avoid taxes by clever use of cash, then rates can be lowered for everyone else.

It is also nonsense to say that criminals and tax evaders will not feel the bite of a less cash society, and that they will effortlessly turn to other vehicles such as Bitcoin. There are good reasons why cash is king and why international law enforcement authorities find that cash is used somewhere along the line in almost every major criminal enterprise. Other vehicles simply cannot replicate its universality, convenience and liquidity. (Again, all this is discussed at length in the The Curse of Cash).

Not surprisingly, there has been pushback from the Reserve Bank of Australia, which argues that 5% of the cash banked by retailers is in 100s. This, of course, hardly matches up to the 45% of the cash supply that is 100s and more importantly, does not take into account that money from the black economy is routinely spent at retail stores. Many central banks are understandably reticent that a fall in the demand for cash will hurt their “seigniorage profits” from printing cash. The book discusses different conceptual approaches to measuring seigniorage. Perhaps the simplest measure is simply net new currency printed each year as a share of GDP). By this metric the Reserve Bank of Australia earned an average of .25% of GDP annually on average from 2006-2015, a very significant sum of money (see chapter 6.) But, as the book argues, the consolidated government (including the central bank) are likely losing even more through cash-facilitated tax evasion, and that does not even count the costs to the public of cash-facilitated crime.

The Australian authorities have noted that under-reporting of cash income has also distorted the welfare system (The Curse of Cash discusses this issue including evidence on Canada). Indeed, former senior Australian Reserve Bank official Peter Maier has argued that large denomination notes are widely hoarded by pensioners who aim to evade Australia’s mean-tested pension system. There are some tricky issues here having to do with privacy and tax fairness, but all in all, getting rid of big bills mainly hits those engaged in wholesale tax evasion and crime, not the poor. The Curse of Cash suggests low-cost approaches to financial inclusion to ensure that low-income families benefit beyond just reduction in crime.

Australia’s gradual and careful approach to dealing with cash is nothing like India’s radical policy, which aims at the same problems, but has created massive collateral damage. For a discussion of India, see here, here and here. The Australian cash commission’s report is due in October 2017; it is a welcome step. Given that Australia has been a huge innovator in currency (the Reserve Bank of Australia commission the first modern polymer notes that the UK and Canada have now adopted), it is encouraging that Australia is still willing to take the lead in the move to a less cash society.

Kenneth S. Rogoff, the Thomas D. Cabot Professor of Public Policy at Harvard University and former chief economist of the International Monetary Fund, is the coauthor of the New York Times bestseller This Time Is Different: Eight Centuries of Financial Folly (Princeton). He appears frequently in the national media and writes a monthly newspaper column that is syndicated in more than fifty countries. He lives in Cambridge, Massachusetts.

Find Kenneth Rogoff on Twitter: @krogoff

Browse our Economics & Finance 2017 Catalog

Our Economics & Finance 2017 catalog features new books from some of the most distinguished names in the field, including Kenneth S. Rogoff (co-author of This Time is Different) and Nobel Prize-winner Jean Tirole.

Browse the catalog below, or visit our stand at ASSA this weekend (1/6–1/8) in Chicago and pick up a copy in person: we’ll be at booths 107 and 109 with a full range of our books across the social sciences, we hope to see you there!

In The Curse of Cash, Kenneth S. Rogoff presents the startling argument that our economies are awash with too much cash. For most of us electronic transactions are increasingly supplanting cash, yet more cash is in circulation than ever before, much of it in large denomination bills that are rarely used in routine transactions. Instead, Rogoff argues, these large bills sustain a wide range of illegal activities ranging from tax evasion to terrorism, and we would be better off without them. Is it time to abolish the $100 bill?


Following his receipt of the Nobel Prize in 2014, Jean Tirole found himself cast into the role of public intellectual, regularly asked to comment on the issues of the day. In Economics for the Common Good Tirole takes to the role with gusto, issuing a clarion call to his fellow economists to join him in engaging in public debate, and applying his formidable knowledge to major issues ranging from unemployment to climate change and the digital revolution.

Economics for the Common Good by Jean Tirole

Economic inequality is an increasingly central and divisive issue in public life, but how can it be tackled? A sweeping survey covering human civilization since the Stone Age, Walter Scheidel’s The Great Leveler demonstrates that increased economic equality has typically followed in the wake of violent catastrophe: wars, revolutions, the collapse of states, and virulent plagues. Are peace and stability inexorably linked with economic inequality?

Scheidel Great Leveler jacket

Find out about these titles and many more in our Economics & Finance 2017 catalog.

Dougherty Plans to Retire Next Year as Director of Princeton University Press

Peter DoughertyPeter J. Dougherty, who has directed Princeton University Press since 2005 and has led the Press in publishing some of the most celebrated scholarly titles of the past decade, including books by a dozen Nobel Prize winners, will retire as director at the end of December 2017.

The announcement was made by W. Drake McFeely, chairman of the Press’s board of trustees and president and chairman of W. W. Norton, at the Press’s annual Association dinner following the December 8 board meeting.

According to McFeely, “Peter Dougherty had a visionary plan for Princeton University Press when he took the reins as director eleven years ago. He has executed and expanded brilliantly on that plan, furthering the scholarly publishing mission of the Press while broadening its reach internationally. He has transformed its editorial, management, and operational structure, and has still found time to contribute his insights to the larger scholarly publishing community and to continue his own editorial pursuits. The Press has been fortunate in its directors, and Peter ranks with the best of them.”

Princeton University president Christopher L. Eisgruber, who chairs the Press board’s executive committee, said, “Peter Dougherty has led the Princeton University Press with spectacular distinction for more than a decade. During his tenure, the Press has consistently published outstanding books that have defined scholarly debates and appealed to a broad range of readers. He has spoken out effectively on issues important to scholarly publishing, and he has built a superb editorial and operational team that will ensure the continued excellence of the Press in years to come.”

The Press will conduct an international search to identify a successor to Dougherty. Jill Dolan, dean of the college at Princeton University and a trustee of the Press, will chair the search committee.

“It is an honor to have worked with the authors, trustees, and staff of Princeton University Press to enhance our list,” said Dougherty, “while also building our international presence by expanding our operation in Europe, opening our new office in China, and moving the Press fully into the digital—and, therefore, global—realm.”

Princeton University Press, a leading publisher of scholarly books since 1905, publishes about 230 titles per year in the humanities, social sciences, and physical sciences. It is headquartered in Princeton, with offices in England and in China. In recent years, the Press has produced record performances in awards won, translations licensed, and sales.

“My colleagues and I at the Press are especially gratified that many of the widely admired books we’ve published in the past decade have been by Princeton faculty,” Dougherty said.

Several of these Princeton-based books include Peter Brown’s Through the Eye of a Needle: Wealth, the Fall of Rome, and the Making of Christianity in the West, 350–550 AD; Jeremy Adelman’s Worldly Philosopher: The Odyssey of Albert O. Hirschman; Angus Deaton’s The Great Escape: Health, Wealth, and the Origins of Inequality; Harriet Flower’s Roman Republics; Hal Foster’s The First Pop Age: Painting and Subjectivity in the Art of Hamilton, Lichtenstein, Warhol, Richter, and Ruscha; Nancy Weiss Malkiel’s “Keep the Damned Women Out”: The Struggle for Coeducation; Steven Gubser’s The Little Book of String Theory; and Alan Krueger’s What Makes a Terrorist: Economics and the Roots of Terrorism.

Peter Dougherty came to Princeton from the Free Press in New York in 1992 as PUP’s economics editor and was named director in 2005. He has served as president of the Association of American University Presses and on the board of the American Association of Publishers. He teaches in the University of Denver’s Publishing Institute and sits on the advisory council of Rutgers University Press and the editorial board of the Princeton University Library Chronicle. He is the recipient of the 2015 Brother D. Aloysius Lumley Alumni Award of the West Philadelphia Catholic High School for Boys.

During Dougherty’s years as director, Princeton University Press has recorded numerous achievements, including:

—Publication of an impressive array of highly acclaimed titles, including multiple winners of the R. R. Hawkins Prize of the American Association of Publishers, the Paul Samuelson Prize of TIAA-CREF, and the Christian Gauss Award of Phi Beta Kappa; two National Book Award finalists; four New York Times bestsellers; and a cluster of outstanding economics titles, including works by Nobel laureates George A. Akerlof and Robert J. Shiller, that came to define the financial crisis of 2007–8.

—Revival of the Princeton Series of Contemporary Poets, initially under the editorship of Professor Paul Muldoon and currently under Professor Susan Stewart, as well as the Press’s lists in art history and the history of science; expansion of its classics and sociology lists; and launch of new lists in computer science and psychology/neuroscience.

—Online publication of The Collected Papers of Albert Einstein through Volume 14 (1923–1925), freely available; of The Papers of Thomas Jefferson, now available freely on the National Archives website; and of The Complete Digital Edition of the Collected Works of C. G. Jung.

—Digitization of the Press’s entire list of publications, including its historical backlist made newly available in the Princeton Legacy Library; repackaging of the paperback Princeton Science Library; launch of the new paperback series Princeton Classics; and digital publication of Princeton titles in the major online library aggregations.

—Expansion of Princeton’s European staff from three to eleven colleagues; establishment of the PUP European Advisory Board and launch of the annual Princeton-in-Europe lecture; and opening of the Princeton University Press office in China and inauguration of the PUP Chinese Academic Advisory Board.

—Migration of the Press’s fulfillment service from its former warehouse, co-owned with the University of California Press, in Ewing, New Jersey, to the Perseus Distribution division of Ingram Publisher Services; establishment of the new domestic sales consortium with the MIT Press and Yale University Press; creation of the Press’s Senior Management Group; and redesign of the Press’s graphic identity and logo.

In retirement, Dougherty plans to remain in Princeton, where he lives with his wife, former book editor Elizabeth Hock.

Doom vs. Boom: Robert Gordon and Joel Mokyr on the future of American growth

From Northwestern Now:

It has been called the ‘clash of titans.’ Two of the biggest names in economics research–Bob Gordon and Joel Mokyr – have been battling it out in the press for years with fiery arguments in the Wall Street Journal and the New York Times, plus debates in countries all over the world, including the latest at the Chicago Council on Global Affairs.

Robert Gordon, author of The Rise and Fall of American Growth, and Joel Mokyr, author of A Culture of Growth, go head to head in their latest debate on the future of economic growth in the United States. You can listen to it via the Northwestern Now podcast, or read the full transcript.





Joel Mokyr: How the modern economy was born

MokyrBefore 1800, the majority of people lived on the verge of subsistence. In A Culture of Growth: The Origins of the Modern Economy, esteemed historian Joel Mokyr explains why in the industrialized world such a standard of living has grown increasingly uncommon. Mokyr offers a groundbreaking view on a culture of growth specific to early modern Europe, showing how the European Enlightenment laid the foundations for the scientific advances and pioneering inventions that would instigate explosive technological and economic development. Recently, Mokyr took some time to answer questions about the book.

How would you sum up the book’s main points?

JM: Before 1800 the overwhelming majority of humankind was poor; today in the industrialized world, almost nobody lives at the verge of subsistence, and a majority of people in the world enjoy living standards that would have been unimaginable a few centuries ago. My book asks how and why that happened. The question of the Great Enlightenment is central to economic history; a Nobel prize winning economist, Robert Lucas, once wrote that once we start thinking about it, it is hard to think of anything else.

Do we know how and where this started? 

JM: Yes, it started in Western Europe (primarily in Britain) in the last third of the eighteenth century through a set of technological innovations we now call the Industrial Revolution. From there it spread to the four corners of the world, although the success rate varied from place to place, and often the new techniques had to be adapted to local circumstances.

How is this book different from other work looking at this event? 

JM: The literature looking at the question of why this happened has advanced three types of explanations: geographical (looking at resources and natural endowments), political-institutional (focusing on the State and economic policies), or purely economic, through prices and incomes. My book examines culture: what did people believe, value, and how did they learn to understand natural phenomena and regularities they could harness to their material improvement.

Whose culture mattered most here? 

JM: Good question! Technological progress and the growth of modern science were driven first and foremost by a small educated elite of literate people who had been trained in medicine, mathematics and what they called “natural philosophy.” The culture of the large majority of people, who were as yet uneducated and mostly illiterate, mattered less in the early stages, but became increasingly important at a later stage when mass education became the norm.

So what was it about these intellectuals that mattered most? 

JM: In my earlier work, especially my The Enlightened Economy (2009), I pointed to what I called “the Industrial Enlightenment” as the central change that prepared the ground for modern economic growth. In the new book, I explain the origins of the Industrial Enlightenment. At some point, say around 1700, the consensus of intellectuals in Europe had become that material progress (what we were later to call “economic growth”) was not only desirable but possible, and that increasing what they called “useful knowledge” (science and technology) was the way to bring it about. These intellectuals then carried out that program through continuous advances in science that eventually found a myriad of economic applications.

How and why did this change happen? 

JM: That is the main question this book is focusing on and tries to answer. It describes and analyzes the cultural changes in the decades between Columbus and Newton, during what is sometimes known as “early modern Europe.” It was an age of tremendous cultural changes, above all of course the Reformation and the Scientific Revolution. Equally important was the emergence of what is known as “the Baconian Program,” in which Francis Bacon and his followers formulated the principles of what later became the Industrial Enlightenment. The success of these thinkers to persuade others of the validity of their notions of progress and the importance of a research agenda that reflected real economic needs is at the heart of the story of how the Industrial Enlightenment emerged.

So why did this take place in this period and in Europe, and not somewhere else? 

JM: Europe in this age enjoyed an unusual structure that allowed new and fresh ideas to flourish as never before. On the one hand, it was politically and religiously fragmented into units that fiercely competed with one another. This created a competitive market both for and among intellectuals that stimulated intellectual innovation. It was a market for ideas that worked well and in it the Baconian Program was an idea that succeeded, in part because it was attractive to many actors, but also because it was marketed effectively by cultural entrepreneurs. At the same time, political fragmentation coexisted with a unified and transnational institution (known at the time as the Republic of Letters) that connected European intellectuals through networks of correspondence and publications and created a pan-European competitive market in which new ideas circulated all over the Continent. In this sense, early modern Europe had the “best of all possible worlds” in having all the advantages of diversity and fragmentation and yet have a unified intellectual community.

Of all the new ideas, which ones were the most important? 

JM: Many new ideas played a role in the intellectual transformations that eventually led to the waves of technological progress we associate with modern growth. One of the most important was the decline in the blind veneration of ancient learning that was the hallmark of many other cultures. Shaking off the paralyzing grip of past learning is one of the central developments that counted in the cultural evolution in this period. The “classical canon” of Ptolemy and Aristotle was overthrown by rebels such as Copernicus and Galileo, and over time the intellectuals of this age became more assertive in their belief that they could outdo classical learning and that many of the conventional beliefs that had ruled the world of intellectuals in astronomy, medicine, and other fields were demonstrably wrong. Evidence and logic replaced ancient authority.

Was the success of the new ideas a foregone conclusion? 

JM: Not at all: there was fierce resistance to intellectual innovation by a variety of conservative powers, both religious and political. Many of the most original and creative people were persecuted. But in the end resistance failed, in large part because both people and books — and hence ideas — could move around in Europe and move to more liberal areas where their reception was more welcomed.

Could an Industrial Enlightenment not have happened elsewhere, for example in China? 

JM: The book deals at length with the intellectual development of China. In many ways, China’s economy in 1500 was as advanced and sophisticated as Europe. But in China the kind of competitive pluralism and diversity that were the hallmark of Europe were absent, and even though we see attempts to introduce more progressive thinking in China, it never succeeded to overthrow the conservative vested interests that controlled the world of intellectuals, above all the Mandarine bureaucracy. Instead of explosive growth as in Europe, Chinese science and technology stagnated.

Does the book have any implications for our own time? 

JM: By focusing on the social and economic mechanisms that stimulated and encouraged technological innovation in the past, my book points to the kind of factors that will ensure future technological creativity. First and foremost, innovation requires the correct incentives. Intellectuals on the whole do not require vast riches, but they will struggle for some measure of economic security and the opportunity to do their research in an environment of intellectual freedom in which successful innovation is respected and rewarded. Second, the freedom to innovate thrives in environments that are internationally competitive: just as much of innovation in earlier times emerged from the rivalry between England, France, Spain and the United Provinces, in the modern era the global competition between the United States, the EU, China, and so on will ensure continuous innovation. International competition and mobility ensure the intellectual freedom needed to propose new ideas. Finally, global institutions that share and distribute knowledge, as well as coordinate and govern intellectual communities of scientists and innovators across national boundaries and cultural divides, are critical for continued technological progress.

Joel Mokyr  is the Robert H. Strotz Professor of Arts and Sciences and professor of economics and history at Northwestern University, and Sackler Professor at the Eitan Berglas School of Economics at the University of Tel Aviv, Israel. He is the recipient of of the Heineken Prize for History and the International Balzan Prize for Economic History. Mokyr’s other works include The Enlightened Economy and the Gifts of Athena: Historical Origins of the Knowledge of Economy. His most recent book is a Culture of Growth: The Origins of the Modern Economy.

Kenneth Rogoff: India’s Currency Exchange and The Curse of Cash

RogoffToday in our blog series by Kenneth Rogoff, author of The Curse of Cash, Rogoff discusses the controversy over India’s currency exchange. Read other posts in the series here.

On the same day that the United States was carrying out its 2016 presidential election, India’s Prime Minister, Narendra Modi, announced on national TV that the country’s two highest-denomination notes, the 500 and 1000 rupee (worth roughly $7.50 and $15.00) would no longer be legal tender by midnight that night, and that citizens would have until the end of the year to surrender their notes for new ones. His stated aim was to fight “black money”: cash used for tax evasion, crime, terror, and corruption. It was a bold, audacious move to radically alter the mindset of an economy where less than 2% of citizens pay income tax, and where official corruption is endemic.


Is India following the playbook in The Curse of Cash? On motivation, yes, absolutely. A central theme of the book is that whereas advanced country citizens still use cash extensively (amounting to about 10% of the value of all transactions in the United States), the vast bulk of physical currency is held in the underground economy, fueling tax evasion and crime of all sorts. Moreover, most of this cash is held in the form of large denomination notes such as the US $100 that are increasingly unimportant in legal, tax-compliant transactions. Ninety-five percent of Americans never hold $100s, yet for every man, woman and child there are 34 of them. Paper currency is also a key driver of illegal immigration and corruption. The European Central Bank recently began phasing out the 500 euro mega-note over these concerns, partly because of the terrorist attacks in Paris.


On implementation, however, India’s approach is radically different, in two fundamental ways. First, I argue for a very gradual phase-out, in which citizens would have up to seven years to exchange their currency, but with the exchange made less convenient over time. This is the standard approach in currency exchanges. For example this is how the European swapped out legacy national currencies (e.g the deutschmark and the French franc) during the introduction of the physical euro fifteen years ago. India has given people 50 days, and the notes are of very limited use in the meantime. The idea of taking big notes out of circulation at short notice is hardly new, it was done in Europe after World War II for example, but as a peacetime move it is extremely radical. Back in the 1970s, James Henry suggested an idea like this for the United States (see my October 26 new blog on his early approach to the big bills problem). Here is what I say there about doing a fast swap for the United States instead of the very gradual one I recommend:

 “(A very fast) swap plan absolutely merits serious discussion, but there might be significant problems even if the government only handed out small bills for the old big bills. First, there are formidable logistical problems to doing anything quickly, since at least 40% of U.S. currency is held overseas. Moreover, there is a fine line between a snap currency exchange and a debt default, especially for a highly developed economy in peacetime. Foreign dollar holders especially would feel this way. Finally, any exchange at short notice would be extremely unfair to people who acquired their big bills completely legally but might not keep tabs on the news.

In general, a slow gradual currency swap would be far less disruptive in an advanced economy, and would leave room for dealing with unanticipated and unintended consequences. One idea, detailed in The Curse of Cash, is to allow people to exchange their expiring large bills relatively conveniently for the first few years (still subject to standard anti-money-laundering reporting requirements), then over time make it more inconvenient by accepting the big notes at ever fewer locations and with ever stronger reporting requirements.

Second, my approach eliminates large notes entirely. Instead of eliminating the large notes, India is exchanging them for new ones, and also introducing a larger, 2000-rupee note, which are also being given in exchange for the old notes.


The idea in The Curse of Cash of eliminating large notes and not replacing them is not aimed at developing countries, where the share of people without effective access to banking is just too large. In the book I explain how a major part of any plan to phase out large notes must include a significant component for financial inclusion. In the United States, the poor do not really rely heavily on $100 bills (virtually no one in the legal economy does) and as long as smaller bills are around, the phase out of large notes should not be too much of a problem, However, the phaseout of large notes is golden opportunity to advance financial inclusion, in the first instance by giving low income individuals access to free basic debt accounts. The government could use these accounts to make transfers, which would in turn be a major cost saving measure. But in the US, only 8% of the population is unbanked. In Colombia, the number is closer to 50% and, by some accounts, it is near 90% in India. Indeed, the 500 rupee note in India is like the $10 or $20 bill in the US and is widely used by all classes, so India’s maneuver is radically different than my plan. (That said, I appreciate that the challenges are both different and greater, and the long-run potential upside also much higher.)

Indeed, developing countries share some of the same problems and the corruption and counterfeiting problem is often worse. Simply replacing old notes with new ones does have a lot of beneficial effects similar to eliminating large notes. Anyone turning in large amounts of cash still becomes very vulnerable to legal and tax authorities. Indeed that is Modi’s idea. And criminals have to worry that if the government has done this once, it can do it again, making large notes less desirable and less liquid. And replacing notes is also a good way to fight counterfeiting—as The Curse of Cash explains, it is a constant struggle for governments to stay ahead of counterfeiters, as for example in the case of the infamous North Korean $100 supernote.

Will Modi’s plan work? Despite apparent huge holes in the planning (for example, the new notes India is printing are a different size and do not fit the ATM machines), many economists feel it could still have large positive effects in the long-run, shaking up the corruption, tax evasion, and crime that has long crippled the country. But the long-run gains depend on implementation, and it could take years to know how history will view this unprecedented move.


In The Curse of Cash, I argue that it will likely be necessary to have a physical currency into the far distant future, but that society should try to better calibrate the use of cash. What is happening in India is an extremely ambitious step in that direction, of a staggering scale that is immediately affecting 1.2 billion people. The short run costs are unfolding, but the long-run effects on India may well prove more than worth them, but it is very hard to know for sure at this stage.

Kenneth S. Rogoff, the Thomas D. Cabot Professor of Public Policy at Harvard University and former chief economist of the International Monetary Fund, is the coauthor of the New York Times bestseller This Time Is Different: Eight Centuries of Financial Folly (Princeton). He appears frequently in the national media and writes a monthly newspaper column that is syndicated in more than fifty countries. He lives in Cambridge, Massachusetts.

Find Kenneth Rogoff on Twitter: @krogoff






Books for Understanding: A Reading List

In the aftermath of the election, here are some books for better understanding the current political climate:

White Backlash
Marisa Abrajano & Zoltan Hajnal


The Rise and Fall of American Growth
Robert Gordon


Democracy for Realists
Christopher Achen & Larry Bartels

Achen Bartels

Expert Political Judgement
Philip Tetlock


Against Democracy
Jason Brennan

Free Trade under Fire
Douglas Irwin


Waiting for José
Harel Shapira


James Campbell


Red State Religion
Robert Wuthnow


How Propaganda Works
Jason Stanley


Good Neighbors
Nancy L. Rosenblum


 Myth of the Rational Voter
Bryan Caplan


On Bullshit
  Harry Frankfurt


Game of Loans: 10 facts about student debt in the United States

LoansThere is considerable concern about the student loan crisis in the United States, where stories in the media have frequently emphasized the increasing cost of college, and the inability of many students to shoulder their debt. In Game of Loans, Beth Akers and Matthew Chingos argue that the problem is much more nuanced than has previously been thought—in fact, they claim, there is not one student loan crisis so much as a series of smaller issues that all require their own solutions. Akers and Chingos flesh out the imperfections in the student borrowing system and make recommendations for change. We’ve put together 10 points from the book that shed some light on the state of student debt in the U.S.


1. The prevailing public narrative surrounding student loan debt, that is a crisis that needs to be addressed immediately, is not new. A 1986 report commissioned by the Joint Economic Committee of the U.S. Congress reported increasing alarm over the increasing rate of student debt and its implications for the national economy.

2. In the mid-1980s, student debt was at about $22 billion in today’s dollars, or $4,200 per student. Today, the amount is closer to $100 billion, or $7,000 per student.

3. Public attention paid to student debt has surged in recent years. In the New York Times, coverage of this topic reached an all-time high in 2014.

4. A 2014 analysis of 100 recent news stories about student debt found that the borrowers profiled had an average debt in excess of $85,000, nearly three times the average borrowing of college graduates with debt.

5. The key feature of federal student loans is that, unlike loans made in the private sector, they are made to anyone regardless of their anticipated ability to repay.

6. The best places to find facts and figures on student debt in the United States is the U.S. Department of Education’s National Postsecondary Student Aid Study (NPSAS), the only publicly available source of detailed information on borrowing at the student level, and the Federal Reserve Board’s Survey of Consumer Finances (SCF), the only dataset that links information on outstanding debt and income and is administered on a regular basis.

7. On average, independent, undergraduate student graduates owe about $22,000 in federal debt, compared to $13,000 for dependent students.

8. Over the last 20 years, the share of Americans in their late twenties who had attended college increased from 53% to 63%; the share with at least a bachelor’s degree increased from 24% to 34%. Over the same period, the share of undergraduate students taking out loans more than doubled, from 19% to 43%. Increased enrollment explains only part of the picture as far as the rising amount of money owed for student loans. Other factors include increased net price to attend college.

9. By the time Lyndon B. Johnson graduated from Southwest Texas State Teachers’ College in 1930, he owed $220 to the college’s loan fund, or about $3,100 in today’s dollars. As president, he created the Guaranteed Student Loan (GSL) program, later renamed the Stafford program.

10. States vary widely in how large of a subsidy they provide to public colleges. The state with the highest list price (New Hampshire) has the lowest funding level, and the state with the lowest list price (Wyoming) has one of the highest funding levels.

Hopefully these facts lend some clarity to and inspire deeper thinking about the issues surrounding student debt in the United States. For a fuller picture, and for the authors’ recommendations for ways to address the problems related to student debt, pick up a copy of Game of Loans by Beth Akers and Matthew Chingos.

This Halloween, a few books that won’t (shouldn’t!) die

If Halloween has you looking for a way to combine your love (or terror) of zombies and academic books, you’re in luck: Princeton University Press has quite a distinguished publishing history when it comes to the undead.


As you noticed if you follow us on Instagram, a few of our favorites have come back to haunt us this October morning. What is this motley crew of titles doing in a pile of withered leaves? Well, The Origins of Monsters offers a peek at the reasons behind the spread of monstrous imagery in ancient empires; Zombies and Calculus  features a veritable course on how to use higher math skills to survive the zombie apocalypse, and International Politics and Zombies invites you to ponder how well-known theories from international relations might be applied to a war with zombies. Is neuroscience your thing? Do Zombies Dream of Undead Sheep? shows how zombism can be understood in terms of current knowledge regarding how the brain works. Or of course, you can take a trip to the graveyard of economic ideology with Zombie Economics, which was probably off marauding when this photo was snapped.

If you’re feeling more ascetic, Black: The History of a Color tells the social history of the color black—archetypal color of darkness and death—but also, Michel Pastoureau tells us, monastic virtue. A strikingly designed choice:

In the beginning was black, Michel Pastoureau tells us in Black: A History of a Color

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Happy Halloween, bookworms.

Beth Akers & Matthew Chingos: Does the public narrative about student debt reflect reality?

Are we headed for a major student loan crisis with borrowers defaulting in unprecedented numbers? In Game of LoansBeth Akers and Matthew Chingos draw on new evidence to explain why such fears are misplaced—and how the popular myth distracts from what they say are the real problems facing student lending in America. The authors recently took the time to answer some questions about the book.

In Game of Loans you argue that the public narrative about student debt has become disconnected from the reality. How do you suppose this has happened?

It’s tough to say precisely, but it’s clear that the media coverage of this issue has played a role. The typical borrower we hear about in news stories about student loan debt tends to have an enormous balance, is unemployed or working a low-paying job, and lives with his or her parents to save money on living expenses. These struggling borrowers are real, and their problems are troubling, but they are outliers in the broader picture of student borrowing in the United States. A 2014 analysis of 100 recent news stories about student debt found that the borrowers profiled had an average debt in excess of $85,000, nearly three times the average borrowing of college graduates with debt. Given the prevailing media coverage, it’s unsurprising that many people are confused.

The public narrative about this issue commonly refers to the state of student lending as a crisis. You argue that this is a mischaracterization of the issue. Why is that?

There is no evidence of a widespread, systemic student loan crisis, in which the typical borrower is buried in debt for a college education that did not pay off. The crisis that permeates public discussion is a manufactured narrative based largely on anecdotes, speculation, shoddy research, and inappropriate framing of the issue. The reality is that large debt balances are exceedingly rare; typical borrowers face modest monthly payments (4 percent of monthly income at the median); the government provides a system of safety nets; and borrowers with the largest balances are typically the best-off because of high earnings.

There is not a single student loan crisis, but there are many crises, ranging from the fact that most students have no more than a vague idea of how much they’ve borrowed, to the hundreds of thousands of borrowers needlessly defaulting on their student loans, to the pockets of students who are making decisions that lead to predictably bad completion and repayment outcomes.

Critics of your argument might suggest that you’re doing more harm than good by dismissing the notion of a crisis. Even if the language used to describe the situation in student lending is exaggerated, isn’t a good thing if it draws public attention to an issue in need of policy reform?

The problem with allowing an inaccurate narrative to persist is that it prompts policy solutions that solve the fictional problems and do little or nothing to help borrowers who really are in need of assistance. A good example of this is the prominent efforts to reduce the interest rates on existing loans under the guise of “refinancing.” The idea has been vigorously promoted by Senator Elizabeth Warren and endorsed by Hillary Clinton. But reducing interest rates on existing loans would provide a big handout to affluent borrowers and do close to nothing for truly struggling borrowers, who tend to have small balances.

It seems that the crux of your argument is that the notion of a macro level crisis in student lending obscures the real problems. So, what are the real problems?

The real problems can be seen in the stories of borrowers struggling to pay back their loans or suffering the consequences of default. Generally, crises occur when students are “underwater” on their educational investment. They’ve paid the price, aren’t seeing the benefit they’ve anticipated, and are stuck with the bill.

One reason students get into this position is because historically we’ve had a dearth of information available on college cost and quality for students to use when shopping for college. This has gotten better recently, but we’ve still got a ways to go in helping students make savvy choices regarding college.

But even with perfect information and rigorous decision making, some students will inevitably find themselves with difficulty repaying their debt. In the existing system, the government offers a pretty robust system of repayment safety nets that exist to ensure that borrowers will never have to face an unaffordable loan payment. Unfortunately, the system of safety nets is incredibly complex for consumers to navigate. And it’s very likely that this complexity has meant that many borrowers in need of assistance did not receive it. In the book, we propose simplifying the system of both borrowing for and repayment of federal loans to alleviate this problem.

LoansBeth Akers is a senior fellow at the Manhattan Institute. Matthew M. Chingos is a senior fellow at the Urban Institute and the coauthor of Crossing the Finish Line: Completing College at America’s Public Universities (Princeton). Together, they are the authors of Game of Loans: The Rhetoric and Reality of Student Debt.

Kenneth Rogoff: James S. Henry’s early approach to the big bills problem

Presenting the next post in a series by Kenneth Rogoff, author of The Curse of Cash. You can read the other posts in the series here, here, here, and here.

RogoffMy new book, The Curse of Cash, calls for moving to a “less cash” society by very gradually phasing out big notes. I must mention, however, a closely-related idea by James S. Henry. In a prescient 1980 Washington Monthly article, Henry put forth a plan for rapidly swapping out $100s and $50s. While The Curse of Cash highlights his emphasis on the use of cash in crime, it should have noted his snap exchange plan early on (as it will in future printings).

Rather than gradually eliminate big bills as I suggest in the book and in my earlier 1998 article, Henry argues for having the government declare that large denomination bills are to expire and must be exchanged for new bills at short notice:

A surprise currency recall, similar to those that had been conducted by governments in post-World War II Europe, and Latin America, and by our own military in Vietnam. On any given Sunday, the Federal Reserve would announce that existing “big bills”—$50s and $100s—would no longer be accepted as legal tender, and would have to be exchanged at banks for new bills within a short period. When the tax cheats, Mafiosi, and other pillars of the criminal community rushed to their banks to exchange their precious notes, the IRS would be there to ask those with the most peculiar bundles some embarrassing questions. (Henry, “The Cash Connection: How to Make the Mob Miserable,” The Washington Monthly issue 4, p. 54).

This is certainly an interesting idea and, indeed, the U.S. is something of an outlier in allowing old bills to be valid forever, albeit most countries rotate from old to new bills very slowly, not at short notice.

Henry’s swap plan absolutely merits serious discussion, but there might be significant problems even if the government only handed out small bills for the old big bills. First, there are formidable logistical problems to doing anything quickly, since at least 40% of U.S. currency is held overseas. Moreover, there is a fine line between a snap currency exchange and a debt default, especially for a highly developed economy in peacetime. Foreign dollar holders especially would feel this way. Finally, any exchange at short notice would be extremely unfair to people who acquired their big bills completely legally but might not keep tabs on the news.

In general, a slow gradual currency swap would be far less disruptive in an advanced economy, and would leave room for dealing with unanticipated and unintended consequences. One idea, detailed in The Curse of Cash, is to allow people to exchange their expiring large bills relatively conveniently for the first few years (still subject to standard anti-money-laundering reporting requirements), then over time make it more inconvenient by accepting the big notes at ever fewer locations and with ever stronger reporting requirements. True, a more prolonged period would give criminals and tax evaders lots of time to launder their mass holdings of big bills into smaller ones or into other assets, and at relatively minimal cost. This appears to have been the case, for example, with exchange of legacy European currency (such as German deutschemarks and French francs) for new euro currency. Of course, in most past exchanges (such as the birth of the euro), governments were concerned with maintaining future demand for their “product.” If, instead, governments recognize that meeting massive cash demand by the underground economy is penny wise and pound foolish, they would be prepared to be more aggressive in seeking documentation in the exchange.

Lastly, just to reiterate a recurrent theme from earlier blogs, the aim should be a less-cash society—not a cashless one. There will likely always be a need for some physical currency, even a century from now.

RogoffKenneth S. Rogoff, the Thomas D. Cabot Professor of Public Policy at Harvard University and former chief economist of the International Monetary Fund, is the coauthor of the New York Times bestseller This Time Is Different: Eight Centuries of Financial Folly (Princeton). He appears frequently in the national media and writes a monthly newspaper column that is syndicated in more than fifty countries. He lives in Cambridge, Massachusetts. His latest book is The Curse of Cash.

Kenneth Rogoff: Just the Big Bills Pazhalsta

Here is the third post in our blog series by Kenneth Rogoff, author of The Curse of Cash. Read the first post here, and the second here

RogoffIn most emerging markets, cash from advanced countries is at best a mixed blessing. On occasion it helps facilitate legitimate business transactions where banking services are inadequate, but it also plays a big role in crime and corruption. Russian news sources have posted pictures of a massive stack of $100 bills, over $120 million worth, found in the home of an official who was supposed to be in charge of Russia’s anti-corruption agency. Of course, as the book discusses, it is folly to think the mass of stashed cash is all abroad. Virtually every estimate suggests that at least half of all U.S. dollars are held domestically. Some have argued that the costs of cash in crime and tax evasion are a “small price to pay” for civil liberties. But this argument applies to banning all cash, and does not really do much to justify the big notes that allow criminals, tax evaders, and corrupt officials to hide, hoard, and port massive amounts.

The book continues to generate a great deal of discussion in general, with many very positive reviews coming in the past two weeks (here, here, here, here, and here, for example). Freakanomics (as always) does an excellent job explaining the ideas and issues, as does the The New Yorker, which also talks extensively about the Swedish experience (covered at the end of chapter 7 in the book).

The UK now has a group campaigning for the country to go cashless by 2020. The group’s webpage echoes many of the arguments made in The Curse of Cash, in particular highlighting how the bulk of cash is used to facilitate crime, tax evasion, and black economy. The group makes the case that coordinated action by stakeholders can accomplish things relatively quickly and effectively without requiring any new legislation. They are definitely on to something. As my book argues, a key feature of cash that distinguishes it from other transactions media that criminals might use is that it can be spent virtually anywhere. If, for example, more and more retailers refuse to take cash (already a trend), that will have a direct impact. While this is very interesting and encouraging, my book argues that society will want to keep small bills indefinitely for a variety of reasons including privacy, dealing with power outages etc. The group’s timeline might be too ambitious—again the book argues that it is important to go slow to allow time for adjustments, to implement policies for financial inclusion, and to allow time to deal with unanticipated issues.

Indeed, virtually all the recent reviews of the book are very attuned to the subtleties of why getting rid of big bills but not small ones might be a happy medium, and The Business Insider has produced an explainer. The recent print reviews also by and large recognize the manifold preparations that negative-interest-rate policy require, and thus why the early experiences in Europe and particularly Japan might be less informative about how negative rates might work in the future than some commentators seem to believe.

Of course, there are still people glued to the past who think the US should go back on the 1800s gold standard (see my discussion of Jim Grant in blog #2), and there are forward-looking thinkers who think that private digital currencies will put governments out of the central-banking business anyway. The book explains why this is nonsense, mainly because the government gets to make the rules in the currency business, and it always eventually wins, albeit sometimes after adapting private sector innovations. The private sector probably first invented standardized coinage, but the government ultimately appropriated the activity. The private sector first invented paper currency, again the government eventually appropriated the activity. The same will almost surely happen with digital currencies, and already government around the world have taken many steps to hinder mainstream use of cryptocurrencies.

On a different note, there are a couple of otherwise very positive reviews which, in passing, allude to a controversy surrounding my 2009 Princeton University Press book with Carmen Reinhart. In fact, there is no controversy around that book, and never has been. In 2013 there was a debate over a short, un-refereed 2010 conference proceedings note. There is an interesting recent discussion of the perils of debt complacency by Reinhart 2016.

RogoffKenneth S. Rogoff, the Thomas D. Cabot Professor of Public Policy at Harvard University and former chief economist of the International Monetary Fund, is the coauthor of the New York Times bestseller This Time Is Different: Eight Centuries of Financial Folly (Princeton). He appears frequently in the national media and writes a monthly newspaper column that is syndicated in more than fifty countries. He lives in Cambridge, Massachusetts. His latest book is The Curse of Cash.