Given the still-subdued economic growth many experts are of the view that the presence of cash has constrained central banks from setting negative rates to stimulate the subdued economic activity. In a future economic or financial crisis, current low rates would restrict the effectiveness of monetary policy, so it is held.
The presence of cash, it is argued, prevents the central banks from lowering policy rates to a level, which is going to meaningfully revive economic activity. What prevents the dramatic lowering of rates is that this is going to severely hurt savers who keep their cash in various bank accounts and so this is seen as politically unacceptable.
The abolition of cash, it is held, is going to enhance the ability of the central banks to use negative rates (perhaps as low as minus 5 percent per year) and this would provide central banks with additional flexibility and tools to deal with a slowdown.
Will We Get More Economic Growth Without Cash?
By advocating the abolition of cash, many experts are implying that cash can be replaced by electronic money. Electronic money can function, however, only as long as individuals know that they can convert it into fiat money, i.e., cash on demand.
Without a frame of reference or a yardstick, the introduction of new forms of settling transactions is not possible.
Money emerged out of barter conditions to permit more complex forms of trade and economic calculation. The distinguishing characteristic of money is that it is the general medium of exchange, evolved from private enterprise from the most marketable commodity. On this Mises wrote,
There would be an inevitable tendency for the less marketable of the series of goods used as media of exchange to be one by one rejected until at last only a single commodity remained, which was universally employed as a medium of exchange; in a word, money.