Ten years after the financial crisis of 2008, the refinancing rate in many countries remained at a record low, somewhere below zero, so the question is whether, and how well monetary policy is generally able to withstand a future economic downturn
One of the options of this policy are – electronic money issued in tandem with the usual cash, write economists at the International monetary Fund in the corporate blog. Conventional money can be used to bypass negative rates, but the electronic money issued by the Central Bank, cannot be placed under any mattress.
IMF economists Ruchir Agarwal and Signe Krogstrup say that the separation of the monetary base into two separate currencies – cash and electronic money – can afford to cut rates even lower than zero. Electronic money will remain solvent, whatever the exchange policy and the exchange rate electronic currency against real is always in favor of the latter.
The key is the conversion factor, as it can devalue the money in the same pace as a negative interest rate on electronic money. The stores will also display prices in electronic money and cash.
“Thus, cash would lose value, in terms of goods and terms of electronic money, and there would be no benefit from withholding funds, unlike Bank deposits,” — said the expert
“This double loop would allow the Central Bank to introduce a minimum interest rate necessary to counter the recession, without causing large-scale exchange of cash”
Negative real rates are now, for example, in Denmark, Switzerland, Sweden and in the Euro area. It was possible to reduce interest rates below zero, as the export of cash in large quantities is inconvenient and costly.
Sweden was also a good test case, as the country is fast becoming more free cash. Its Central Bank, whose current rate is minus 0.25 percent, is also exploring the possibility of issuing so-called electronic crown.
According to Ruchir Agarwal and Signe Krogstrup, dual system “will have the benefit of full exemption of the monetary policy from the zero bound, and also reaffirm the commitment of the Central Bank’s goal of inflation targeting”.
But there are problems, for example, will require a “huge communication effort”, but there are other options to increase the space for monetary policy, such as higher inflation targets, the experts said.
“S. Shcheglov: pragmatically look at the proposal of the IMF, which writes
Bloomberg, except that you can be surprised by the level of arrogance and directness
So, here’s how they look at the problem of Western economies: the little people
spend. Instead of spend, get into debt and then spend –
part of the population and the businesses involved (horror of horrors!) savings. And
savings is evil. It is necessary to punish them and encourage that they
the money was spent and thus started the economy. Here in Europe introduced
negative rates on deposits to save was pointless and the people did
spending money. In response, the people and the business began to withdraw money cash and
to hide under the mattress, and this limits the level of negative bets
you can enter for if they drop too low, money in
stupid banks will not. So, geniuses of the IMF will come up with a solution and they
it found: you need to invalidate the cache, that is to introduce some kind of “conditional
unit e-cash” and all transactions to permit only in them, when
this gradually “lowering” the exchange of cash for electronic.
The ultimate goal, and here I directly quote from the blog of the IMF: “Cash would thereby
be losing value both in terms of goods and in terms of e-money, and
there would be no benefit to holding cash relative to bank deposits.” –
“Thus, the cash loses its value both from the point of view
goods, and from the point of view of electronic money, and holding money
of funds compared with Bank deposits will not bring any
Victims of such measures, the IMF will have to choose between buying goods directly
now, Deposit with a negative percentage (i.e. lose money) or
losing the value of paper money. Ah Yes, government bonds
they, too, with a negative percentage, that no one intelligent could not avoid
That is, the message is: “We will not let you, the plebs, to stash the loot. You will
spend all your money and still in debt to get. Conservation and
capital increase – is not the motor of capitalism and the purpose of each
citizen, as you said in the twentieth century, but a privilege only for the elite.”
It remains to understand when they are still of gold will decide to ban (as already
happened). And then to devalue it in favor of the IMF does not.
PS: If you introduce this scheme (rather likely that we’ll see it in action
the not too distant future) I’ll be interested to see the reaction
many fans of “dollars and euros under the mattress and in the safe”,
I have many years of writing about the exceptional reliability of the Western
financial systems (textbooks in economic history they did not read, and
so doomed some things can survive in the mode of surprise and amazement)“.