Why do PCs need to dispose of loot into cash in order to get the XP value of it?
It provides the following benefits:
PCs don't get to have their cake and eat it, too. They can't keep everything that might be of value, use it, and gain XP for having done so. They can't use things until they tire of them and then turn them into cash, having always gained all they could out of it. They need to make decisions about the need for loot vs. the optimum usage of gear they find. Since, in my games, the players always opt for a cooperative communal ownership model, this makes it less likely they'll hold onto random items just in case someone later makes up a new character who just happens to use it.
This in turn saves me a lot of headaches:
- massive lists of gear found;
- people forgetting what's been found and what's been sold;
- not having the weirdness of "hi new guy, want this +2 katar we found 47 sessions ago that you happen to have Weapon Master for?" which mysteriously never happens with NPCs;
- having to know the actual market value of everything, including things no one would sell (Shieldslayer, Sterick's armor, weird unique potions, etc.) and report it to the PCs so they can gain XP from it;
- not having to make weird rules about what "counts" for loot and what doesn't to avoid the former problem ("Okay, magic items don't count." "But what if we sell it?")
It also provides a lot of versimilitude in actions. PCs generally make hard choices about what to keep and sell, and make decisions for long-term item usage over XP, XP over long-term item usage, and so on, for purely gamey reasons. But in game, it's delvers coming to the surface with a valuable item, looking at each other, and saying, we need cash . . . let's sell this and hope we find better some other time. That feels right.
This is also why old loot doesn't count for XP - you can't take "just enough" out of a hoard and come back for more next time to make your threshold. You can't seed the dungeon with loot by bribing monsters and hoping to seize the loot back again. You have to deal with right now, right now.
So overall, it's a game construct that drives less bookkeeping and interesting decisions.