AN INSTRUMENTALITY OF EVIL:

As it turns out, there are good reasons for having doubts about the way cash works in the contemporary economy. In a brilliant and lucid new book, "The Curse of Cash," the Harvard economist Kenneth Rogoff gives a fascinating and thorough account of the argument against cash. There are two main pillars to it. The first and more wonkish concerns something called the "zero lower bound." Because official interest rates can't be set below zero -- if they were, people would just hold cash instead -- the tool kit of monetary policy has a built-in limit. This might sound like a small point, but as Rogoff explains, "the zero bound has essentially crippled monetary policy across the advanced world for much of the past eight years." Governments want to get money moving in the economy, but in a world awash in paper currency, monetary policy can do nothing further to help. If central banks could go below the zero bound, as a cashless economy would allow, they could in effect force people to spend their money and thereby kick-start the economy.

The zero bound, however, is not the issue in India. There, the main focus is the second big argument against cash: that far too much of it is involved in crime. Think for a moment about how much actual physical cash you have. I'm willing to bet you're a long way below the per-capita amount of dollars in circulation in the United States: $4,200 for every man, woman and child in the country. Eighty percent of that is in the form of $100 bills, which many Americans hardly ever see. Where is all this money? The short and very disconcerting answer is that, in Rogoff's words, "treasuries and central banks simply do not know" where this money is.

If there is no cash, there is nowhere for the private citizen to hide any assets at all, not just for criminal reasons but simply for financial security.

Among students of the subject, the assumption is that this cash is overwhelmingly used for activities that evade tax but are otherwise legal (for instance, paying workers, from builders to babysitters, off the books) but also for outright crime. The "underreporting of business income by individuals who conduct a significant share of their transactions in cash" is, Rogoff reports, the single biggest contributor to the "tax gap," the approximately $500 billion annual difference between federal tax voluntarily paid and tax due. The numbers for untaxed criminal transactions are huge, too. One example: Business in the United States for the four main drugs -- heroin, cocaine, marijuana and methamphetamine -- is worth $100 billion a year, almost all of it carried out in cash.

A million dollars in $100 bills weighs 22 pounds and can fit in a shopping bag. Imagine that a proposal to phase out high-denomination notes was implemented in the United States. If the highest-​denomination note were $10, that million bucks would weigh 10 times more, take up 10 times as much space and be a lot harder to hide -- and how many legal activities would be disadvantaged as a result? This is why Modi went after cash: The idea was to crack down on what he calls "black money," a term encompassing tax evasion and all forms of crime up to and including the use of counterfeit currency to fund terrorism. By the end of 2016, Indians with serious "black money" (including counterfeit versions of the old bills) had no choice except to either trash it or take it to a bank and explain how they earned it.

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