The zero-bound is a situation where nominal interest rates hit, well, zero. In theory, they cannot then be lowered any further. After all, why would someone lose money by depositing their wealth into an account that shrank over time when they could just hold cash?
Well, it turns out that there are some reasons. Interest rates are turning negative in Europe. Holding cash has a cost.
The higher that cost, the more people will be forced into the financial system. So how can we make it really high? Well, you could ban cash, but that’s draconian.
Our suggestion? Abolish paper money. Make the largest denomination a $10 coin, weighing a full ounce. (That would be about 28 times the weight of a $10 bill.) That would $100,000 weigh about three tons. You could still store cash in your basement, but it would be hard.
Of course, eventually someone would start to allow you to deposit coins with them and write drafts against the coin piles. Oh, wait, there already is an institution that does that ...
Abolish paper money.
Oh, so you're pro cryptocurrency now. kewl. ;)
Posted by: Will Baird | February 06, 2015 at 02:39 PM
Tosh and Swift. Quite the opposite, in fact.
Posted by: Noel Maurer | February 06, 2015 at 03:51 PM
note: joking. hence winkie.
Posted by: Will Baird | February 06, 2015 at 06:24 PM
I got it! "Tosh and Swift."
Posted by: Noel Maurer | February 08, 2015 at 01:32 AM