The Wall Street Journal recently ran pro and con articles on the idea of abolishing cash -- that is, paper currency. If that were done, all transactions would have to be carried out electronically via means such as credit and debit cards or other electronic payment means. The supposed advantage is that it would make it difficult for criminals and the underground economy to carry on their business, because the government would know exactly what they are up to.

Another supposed advantage is that it would make it easier for the government to impose negative interest rates to fight deflation. Negative interest rates means that the government steals some percentage of your bank balance each year. Negative interest rates are difficult to impose if people can hide their money as anonymous currency.

A Puerto Rican commentator on the Wall Street Journal article pointed out that Puerto Ricans without cash were in difficult straits because the failure of the electric grid due to hurricane Maria made it impossible to use credit or debit cards.

The prospect of total and long-term failure of the electric grid due to electromagnetic pulse suggests that everyone should keep $500 or more cash in their house. Electromagnetic pulse, EMP, can result from a natural solar flare, or from the detonation of a single nuclear weapon in near outer space above the USA. The North Koreans have threatened to use EMP against the USA.

The government has already taken some steps to make the use of cash more difficult. The largest U.S. currency is now the $100 bill. Formerly $500 and larger notes were available.

The U.S. $100 bill is a de facto international currency. About $1.1 trillion in $100 dollar bills are in circulation, 75% outside of the U.S. Citizens of countries with unstable money often keep savings in $100 bills, out of sight of their governments. This money is an interest-free loan to the U.S. government. If the $100 bill is recalled, the loan would have to be paid off. When I traveled to South America in the 1970s with $100 bills, I was able to obtain favorable exchange rates from citizens of various countries eager to hoard $100 bills. The U.S. government is already profiting from the international underground economy.

A million dollars worth of gold at the current price weighs about 53 pounds. Gold is a practical alternative to $100 bills and is available as coins of the U.S. and various nations, as well as in the form of various types of tokens. Ninety-percent U.S. silver coins, minted in 1964 and earlier, are also available, as well as current silver coins produced by the U.S. government and private mints. Clearly, gold would be a viable alternative to paper currency for underground transactions. Gold and $50 bills weigh about the same for the same value. At the current price, silver is about 50 cents a gram, making silver weigh twice as much as $1 bills.

The government could outlaw the use of gold, as it did in 1933. As a result of the 1933 gold confiscation, the dollar was debased from $20.67 an ounce of gold to $35 an ounce. (Gold is currently worth $1300 an ounce.) The owners of confiscated gold were paid off at the old price, causing them to lose 40% of the value of the gold. The 1933 confiscation was ruled legal, but hardly encourages trust in the integrity of the government.

The U.S. $500 bill was discontinued in 1969, leaving the largest bill as $100. Since 1969 inflation means that $100 in 1969 has a value of $700 in today’s money. In order to keep up with inflation, it seems clear that now is a good time to bring back the $500 bill.

Abolishing paper currency would drive the underground economy to the use of gold or other country paper currency. If all transactions are electronic, the government can track your every move and seize all your money with a keystroke. According to the Constitution, you are entitled to recover money wrongfully seized, but the deck is stacked against you and you may have to fight in court for years if you can find a lawyer who doesn’t want money up front.

A recent article reported that the Internal Revenue Service seized about $15 million from innocent people and “The report also found that investigators violated internal policies when conducting interviews, failed to notify individuals of their rights, and improperly bargained to resolve civil cases.” The IRS also “…leveraged its civil forfeiture cases by threatening to file criminal charges.” Is it a big surprise that government agencies abuse their authority because a bureaucratic mountain must be climbed into order to fight back?

If the USA were to go cashless or even eliminate the $100 bill, there would be a loss of international confidence. The U.S. would lose the huge anonymous loans from foreigners holding $100 bills. Another government, probably China, would offer an alternative that might be better than $100 bills. For example, China could offer a crypto currency backed by gold. Transfers between individuals could be done anonymously online. The China bank would have no idea who the money belonged to. Deposits or withdrawals could be done anonymously by depositing or withdrawing gold or currency. A cryptological key would be presented or received for withdrawals or deposits. Once a deposit was made or withdrawn the records or ownership, if any, would be destroyed. Such a currency would be hidden from the government, including the government sponsoring the bank, and provide a perfect mechanism for criminal use of money.

Although criminals, terrorists and tax evaders can use U.S. currency for nefarious purposes, abolishing paper money will only cause the bad guys to utilize other means that might be even more difficult to track. The U.S. has a great business based on the confidence that people all over the world have in the dollar. Rather than destroying this business in a futile attempt to catch tax evaders, the U.S. would be better advised to enhance the international holdings of U.S. currency. Resurrecting the $500 dollar bill would be a good start.

Norman Rogers writes often about energy and politics. He has a website.