[Citigroup Chief Economist Willem] Buiter's solution to cash's ability to allow people to avoid negative deposit rates is to abolish cash altogether. – Bloomberg Business, April 10, 2015
Fractional reserve bankers love money. They don't love cash, in part because it reduces their ability to pyramid loan on top of loan and create new money from which they can extract interest. They have always had to tolerate its existence.
Now, with the growing prevalence of negative interest rates, they see a possible solution.
The Bloomberg article explains the thought process. Central banks think they can boost the economy by reducing interest rates. This weapon loses effectiveness when rates drop below zero, as is now the case in parts of Europe.
Physical cash has a yield advantage over bank deposits when rates are negative. There is a disincentive to leave your money in a bank account "earning" -2% when you can hold paper money and break even.
Citigroup's Buiter says that abolishing currency would solve this problem – for the banks, that is. He acknowledges five disadvantages for everyone else.
1. Abolishing currency will constitute a noticeable change in many people's lives and change often tends to be resisted.
2. Currency use remains high among the poor and some older people.
3. Central banks and governments would lose seigniorage revenue.
4. Abolishing currency would inevitably be associated with a loss of privacy and create risks of excessive intrusion by the government.
5. Switching exclusively to electronic payments may create new security and operational risks.
Buiter dismisses all the concerns as "rather weak," perhaps because another compelling advantage outweighs them. Without cash in the equation, Citigroup could leverage its balance sheet to infinity, enhance its revenue and give its chief economist a handsome bonus before the entire economy collapsed. He doesn't mention that part.
Actually, there is a sound argument for eliminating currency, if we eliminate fractional reserve banking and legal tender laws at the same time. Technology now exists to make a cryptocurrency such as bitcoin as convenient as cash. It could also be more secure and private than either cash or bank deposits.
This would be an interesting experiment in conjunction with something like Iceland's proposed new monetary system. As we said in Iceland vs Banksters, the idea could be a step in the right direction, despite some inherent flaws.
In advocating the end of currency, Citigroup solves the wrong problem. The real answer would be to restore paper currency's tie to an objective store of value like gold. Not surprisingly, Buiter doesn't consider that option.
As long as he works for Citi, he never will.