The Hidden Costs of Cash: Op-Ed by Dean Chakravorti in Harvard Business Review

Harvard Business Review

Bhaskar Chakravorti is a Senior Associate Dean at The Fletcher School of Law and Diplomacy, Tufts University.

Cash – by which I mean paper currency and coins — has many benefits. It’s safe from hackers. It doesn’t require any special hardware or software. There is no fee charged to retailers who use it and no exorbitant interest rates lying in wait for consumers. It’s accepted almost everywhere and it offers anonymity.

While it has been steadily displaced by a variety of competitors, such as credit and debit cards, mobile payments, and cryptocurrencies, there are many good reasons paper money has stuck around. There’s an assumption that cash is best when money is tight – best for the poor, and best for small businesses running on tight margins.

And yet cash does carry costs. My colleague Benjamin Mazzotta and I have been studying the costs of cash across a wide range of countries: U.S., Mexico, Egypt and India.  With the exception of the U.S., these other countries represent economies primarily conducted in cash.  The U.S. offers an interesting case study in what happens when only about a third of all transactions are conducted using cash payments.

The use of cash involves several social costs to individuals — especially the poor — as well as business and the government.

Read the full op-ed