Estonian Economist Suggests Abandoning Cash

J-Georg writes "Raul Eamets, professor of macroeconomics at the University of Tartu, proposed today during his TEDx talk that Estonia should stop using cash at all when adopting the Euro as the national currency (Estonian original). He also pointed out that abandoning cash would not be only important for the Estonian economy as a whole but also is a real challenge for both IT and banking sectors and would also improve Estonia's image as an IT-tiger."

Comments

Re:On the subject of economics and money...

[Orgasmatron]

Steve Keen knows his stuff. I highly recommend his blog to anyone interested in economics, even though I disagree with several of his conclusions and proposals.

He was recently able to give the full (long) version of his standard presentation in Michigan. Go watch it. http://www.debtdeflation.com/blogs/2010/11/15/why-credit-money-fails/

Re:Might I suggest an alternative currency

[ChatHuant]

In fact the value of currency is psychological.

In fact it's not. Or more precisely, not only.

If one dollar buys one candy bar, why should that change if there are more dollars? Nothing has really changed in terms of the candy bar's production costs.

The price of an item is a function of its scarcity and of the effort required to create it. If everybody had lots of money, nobody would be willing to work to create more candy (why bother making candy for a buck a piece, when you can just shake the money tree in the backyard, and get more bucks with less effort?). So candy becomes a scarce resource, and everybody competes for the same limited amount of candy. The only way to get the sweet luxury is to pay more. The price of candy goes up, and will continue growing until either people give up on candy, or the price becomes high enough that making candy becomes profitable again.

Re:What about tipping peopel like bellhops / skyca

[FatLittleMonkey]

In many countries, wait staff are paid a decent working wage so they don't need to rely on tips to survive. The listed price is the price you pay. (In fact, tipping is banned in some industries, such as casinos.)

Re:no thanks

[guyminuslife]

They might use a physical currency. They would not use dollars. The dollar was used historically because is stable, it has a wide international reach, and there wasn't any European currency that could compete with it on scale. Sure, you had British pounds and French francs and German marks, but the dollar was the big boy in town.

Nowadays, that's no longer true. The Euro is a completely viable alternative to the dollar on a broad international scale. It's even used as the official currency in countries outside of the EU: see, for instance, Kosovo. The physical Euro has some nice advantages for Estonians: you can drive to the country next door and actually spend themat any retailer, as opposed to trading them as a "black market" currency. And as the summary notes, it's already going to be the official currency of Estonia, even if not in physical form, which reduces barriers to depositing physical Euros into, say, a bank account. You don't even have to do a currency exchange!