Less Money, More Impact
Blog Post
Dec. 15, 2011
This week, renowned blogger Matthew Yglesias argued that moving away from a physical currency would make the US economy recession proof. He points out that a time-tested approach to ending recessions is cutting interest rates, since "when rates fall, business investment, homebuilding, and durable goods purchases all rise and next thing you know everybody’s back to work." The problem is that currently the US has interest rates are already near one percent, and any drop below zero would lead "people [to] just withdraw money and store it in shoeboxes." That is, unless taking cash out of the bank was not an option. In this case, argues Yglesias, a negative interest rate would incentivize those with money in the bank to invest, make purchases and spend the country out of recession as they have in times past.
We certainly agree with Yglesias that there are are usually better ways to do business than with cash. As we have also argued in Slate, in the context of official development assistance, electronically transferring funds directly to beneficiaries, as opposed to foreign governments or aid agencies, decreases corruption, increases efficiency and has a greater impact on the people we are trying to help. We have made a similar case for national governments to electronically transfer money to beneficiaries of public benefit programs instead of handing out cash. In fact, depositing these funds directly into poor households' bank accounts, as is done in Peru, has the additional benefits of enabling them to reliably save money and be better prepared for emergencies.
Although these steps away from cash may not make the global economy recession proof, they would be an amazing boost to the lives and livelihoods of aspiring families around the world.