Buiter suggests 3 ways to address this problem:
1. Abolish currency
2. Tax currency
3. Remove the fixed exchange rate between currency and central bank reserves/deposits
Buiter is aware that his idea may be somewhat controversial, so he goes to the effort of listing the disadvantages of abolishing cash:
1. Abolishing currency will constitute a noticeable change in many people’s lives, and change often tends to be resisted.
2. Currency use remains high among the poor and some older people.
(Buiter suggests that keeping low-denomination cash in circulation — nothing larger than $5 — might solve this.)
3. Central banks and governments would lose seigniorage revenue.
4. Abolishing currency would inevitably be associated with a loss of privacy and create risks of excessive intrusion by the government.
5. Switching exclusively to electronic payments may create new security and operational risks.
Buiter dismisses each of these concerns in turn, finishing with:
- In summary, we therefore conclude that the arguments against abolishing currency seem rather weak.
Read more at http://teapartyeconomist.com/2015/04/18/banker-says-abolish-cash/