Is cash really consistent with a free market?

Bloomberg ran an article by Narayana Kocherlakota with the headline, "Want a free market? Abolish cash". The move to eliminate cash continues. But now, with a new argument -- cash is anti-free market.

Sounds good, right?

Finally, someone is going to argue that much as freedom-loving people like cash, it's still a government monopoly that is a vehicle for market manipulation.

Here's the crux of the argument:

[G]overnments -- by issuing cash and managing inflation -- put a floor on how low interest rates can go and how high asset prices can rise. That's hardly a free market.

Right, this makes sense. Therefore, governments should not issue cash or manage inflation so that we have a free market rather than the government engineering interest rates and asset prices.

Where it goes off the rails:

Except, then it says this:

If cash were abolished, I would support the adoption of two complementary measures. First, instead of targeting a positive inflation rate, central banks could target true price stability by aiming to keep the level of prices constant over time. (To be clear, this would be disastrous unless cash were eliminated first.)

Wait, I thought we were getting rid of cash to have a free market determine interest rates and asset prices rather than letting governments impose them. Central banks are effectively governments. All you've done is eliminate a restriction on the power of governments -- before they couldn't really impose negative interest rates effectively, now they can.

And then it says this:

Second, currency does provide a service beyond being a store of value and a medium of exchange: It's anonymous and thus ensures the privacy of transactions. In its absence, governments would have to allow the private sector to offer alternatives with the same attractive features.

Without rolling back the entire KYC/AML/BSA regime, the private sector can't possibly ensure the privacy of transactions or any kind of anonymity. They're liable for facilitating things like terrorist financing and money laundering. They have to know everything. And they have to tell each other everything because transactions involve more than one company and they're all liable.

Is he saying we need to roll back the entire KYC/AML/BSA regime to let central banks impose negative interest rates on people's savings? And this is somehow pro-free market because it gives central banks more power to control interest rates?

I must be missing something.

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• Read this followup on the move to eliminate cash.
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