Problems

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But people won't spend their money because it is depreciating. They will simply
try to find another medium in which to store it, perhaps gold. There is another
element of fallaciousness in circulating this kind of money and that has to do w
ith the real reason for imposing negative interest rates. It has to do with the
war on cash. We wrote about this in "Bamboozlement of Bank Runs as World Goes Ca
shless." Over the next months we will be likely be bombarded with statements abo
ut the fragility of the banking system, worldwide. But it is the progress of the
"cashless society" that you want to keep your eye on.
Our point was that the real goal of central bankers is to remove physical cash a
nd non-precious metal specie from circulation. We are now being exposed to a ser
ies of virulent dominant social themes that will attempt to confuse the reality
of what is actually going on.
This is how a central bank could kill off cash with negative interest rates Mile
s Kimball, professor of economics at the University of Michigan, explains that f
light to cash could be prevented in the latest economic review from the National
Institute of Economic and Social Research (NIESR), published Wednesday. Clearly
, bringing in negative interest rates on electronic money isn't the problem, tha
t's just a matter of setting them.
Kimball argues that the value of various units of cash is determined by the cent
ral bank: If the Fed simply refuses to take cash at its printed value, that pose
s a major problem for ordinary banks There'd be a reduction in the value of pape
r money over time.
If you did want to practically abolish cash, you'd just need a small tweak. In f
act, all you'd need to do is make that negative interest rate at the cash window
more steeply negative than the one people were getting on their electronic mone
y.
Cash is valuable to some extent because it's fungible exchangeable for an identi
cal unit and liquid. But this proposal would quickly end that, and split electro
nic money and paper money into two effectively different currencies. Paper money
would be depreciating in value more quickly than electronic money. In effect, p
aper money would have higher inflation than electronic money.
It remains to be seen whether stronger benefits come at more-negative rates. And
it s impossible to know whether things might have been much worse had the countri
es not tried negative rates.
The problem with storing money in a bank while interest rates are negative is th
at holding cash money is more appealing, since cash money will have a higher ret
urn stored under one s mattress than if kept in a bank. One solution would be to i
mpose a carrying tax on money. If cash were to be stamped periodically in order
to lower its value, then, if the opportunity cost for holding cash were to be hi
gher than depositing in a bank, people would return to giving their money to ban
ks. Deposits grow, so the amount available for banks to loan out grows.
But keeping track of a dollar s worth and periodic stamping is difficult to admini
ster. Another way to tax money would be to use a familiar method: inflation. If
the central bank were to increase the rate of inflation, the value of all dollar
s would fall, and suddenly individuals are forced to turn to measures other than
cash to maintain the value of their wealth.