Some economists, including Harvard’s Ken Rogoff, want to minimize the circulation of cash. Such proposals are usually justified on the grounds that they would (1) reduce criminal activity and tax evasion while also (2) helping central banks execute monetary policy when interest rates are at the zero lower bound. Both arguments have been challenged on this blog (here, here, and here).
In practice, politicians interested in demonetization have relied primarily on the first justification. If you are conducting legal transactions, they say, you should have no problem using a check, debit card, or credit card---all of which leave a (digital) paper trail. Only those involved in illegal activities---including underreporting one’s income---would object to such a policy. What do you have to hide?
There are, in fact, many legitimate reasons for conducting transactions in cash. Some might hope to avoid bank fees. Others might rely on cash as a mechanism to stay on budget. But perhaps the best response to the “What do you have to hide?” objection is “None of your business!” Some of us still value financial privacy.
The what-do-you-have-to-hide objection assumes one is guilty until proven innocent. It ignores the usual presumption of innocence---a basic civil liberty protected in well-functioning democracies. Instead, it requires defending one's actions despite no evidence of wrongdoing. Such a policy is inconsistent with the liberal tradition. It is the way of despots. Surely we can find a better way to deal with crime and tax evasion.