There are all sorts of cultural differences that I'm discovering here during my study abroad. One of which is common use of cash and the second is the large denomination coins.

First, I think that a large part of I'm seeing a lot of cash usage is because the section of Paris that I live in is a bit poorer and as a result have more reliance on cash. For overall usage, I'm getting mixed signals. Once a French student asked me and another American exchange student if we were impressed by the heavy use of "carte bleue", a French system of quasi-credit debit cards and she immediately protested so perhaps I'm not the only one who feels that way.

The second issue on money is that they have 2 Euro coins. As an American, where the largest common coin is a quarter, a 2 Euro coin psychologically feels like a trivial amount. It's been one of those small things that irks me here.

Now, I've found a Government Accountability Office (GAO) report that finds that the US, while incurring some initial fixed cost, would save $5.5 billion dollars by switching to the dollar coin. The Euro is not alone. Australia, Canada, and New Zealand have all switched over to 2 dollar coins, which are all worth more than $2 USD due to exchange rates. You can read the summary or the full report. 

Part of me thinks that the American people are such traditionalists that this change would require a significant amount of political capital to remove the dollar bill, not to mention the initial costs in this economic doldrum. One only needs to recall the fight that happened over the removal of pennies, and that proposal wasn't nearly as far reaching.

I think that the question that I'm wondering is what would happen if we started moving to an entirely cash free economy. What are the effects of removing cash entirely from the US economy?

First, let's address some of the simple issues. Merchants would face increased fees from the credit and debit card companies but it would reduce the labor and speed up queues. In my mind this is a wash. Consumers would no longer have to carry around cash, though it would likely encourage them to spend carelessly.

Tax evasion would be much more difficult as unreported cash transactions would no longer be possible. I'm not a law enforcement agent, but from my extensive television research, it seems that certain forms of crime, laundering, drugs, illegal immigration, would be more difficult as transactions would be easier to track.

However, the sole use of electronic payments would raise some issues on the less established. The lower income brackets, which have been traditionally underbanked, would find this change a bit difficult.

Small business who are not established would find that the cost of starting a business would slightly increase. My gut reaction is that simple and cheap credit card readers would become available. I've payed another student with my credit card via paypal and credit card readers are being made as addons to iPods.

A quick Google and Google Scholar search didn't net any interesting results so I'm currently unaware of any serious thinking on this matter. Just a curiosity.

Update: Link to the summary and full report added.