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Paper money still has a very important role, because it can't simply be deleted from your account. That's important, because central banks are considering nega

Paper money still has a very important role, because it can't simply be deleted from your account. That's important, because central banks are considering negative interest rate policy, which would mean your bank account would drop by a percentage each month. This would drive people to spend or invest their money, supporting consumption and inflating asset prices. The reason they can't do that right now is because many people would withdraw their funds and hold cash. That option needs to be removed for negative interest rate policy to be broadly implemented. (There are a few places, like Europe, where interest rates already went negative, but only slightly and it only applied to institutions like banks).

philwelch 4y ago
That’s horrifying and I have a hard time imagining that sort of thing happening in any functional democracy.
- mitthrowaway2 4y ago
  You might, but the central banks don't! It's a recurring theme in published research papers by economists and by the central banks themselves. It's called "breaking through the zero bound" on monetary policy, or "removing the effective lower bound". The tone in these papers is universally that this would be desirable for the central bank, but hard for the public to accept. For example from the Fed: "The Case for Unencumbering Interest Rate Policy at the Zero Bound", https://www.kansascityfed.org/documents/7033/GoodfriendPaper_JH2016.pdf https://www.kansascityfed.org/documents/7033/GoodfriendPaper... > With these advantages in mind, the final portion of the paper describes in detail three methods by which the zero bound on interest rate policy can be unencumbered completely. The three methods in turn would: 1) abolish paper currency, 2) introduce a market-determined flexible deposit price of paper currency, and 3) provide electronic currency (to pay or charge interest) at par with deposits. Or the Bank of Canada's paper, "Is a Cashless Society Problematic?", https://www.bankofcanada.ca/2018/10/staff-discussion-paper-2018-12/ https://www.bankofcanada.ca/2018/10/staff-discussion-paper-2... > a cashless society could open the door to the prospect of negative interest rates to a greater extent than is currently possible. Most central banks are obligated by law to supply cash to the general public. To the extent that the economy becomes cashless, a central bank could request a change in its governing legislation to remove the obligation to supply cash to the public on demand (which is a significant step). In that case, in the absence of cash and of an obligation to supply it, a central bank would be able to lower interest rates to a more negative level than is currently possible to achieve stabilization or price stability goals.
  - philwelch 4y ago
    > The tone in these papers is universally that this would be desirable for the central bank, but hard for the public to accept. Yeah, that’s putting it mildly! Isn’t this basically a wealth tax on the middle and working classes?
    - mitthrowaway2 4y ago
      Yes, on anyone who works to earn a wage rather than owning appreciating assets, basically. I don't know, maybe it won't happen. But the signs are all pointing in that direction, so I'm kind of resigned to it going that way eventually. Probably it will start by restrictions on large cash transactions, and on owning or carrying large amounts of cash. Then fees for withdrawing paper cash from bank accounts. Perhaps retailers will be allowed to add fees for cash transactions, too. The last step would be deprecating cash altogether, allowing banknotes to be deposited but not withdrawn (withdrawals will be as a CBDC). Just my guess on how it will go.
      - imtringued 4y ago
        >Yes, on anyone who works to earn a wage rather than owning appreciating assets, basically. People who work for their wage are utterly dependent on the benevolence of the rich who withhold their money from the market. Withholding money from being spent or saved is how you get unemployment and inequality. If anything people who work for money will appreciate that they are being paid and the people they pay will also appreciate it. The only people who won't appreciate are those who already have so much money they don't know what to do with it.
    - imtringued 4y ago
      A wealth tax on cash...? Are you kidding me? You can literally avoid it by going to the bank to save your money.
      - mitthrowaway2 4y ago
        You misunderstand. The bank would be giving you a negative interest rate, so your account balance would always be exponentially decaying. Cash would allow you to escape this, which is why it would be removed as an option.
imtringued 4y ago
>That's important, because central banks are considering negative interest rate policy, which would mean your bank account would drop by a percentage each month. Imagine the horror of having to pay a parking fee instead. Truly horrifying. How are we supposed to pretend that it is ours anymore and extort payments from other people by blocking all the free parking lots? >This would drive people to spend or invest their money, supporting consumption and inflating asset prices. You know, in neo classical economics the idea of not spending your money on consumption or investment or saving your money isn't even considered to be something that even happens (by that I mean in neo classics all saving happens at the bank anyway) So if you are against that then you leave central banks no choice other than to create exponentially growing quantities of money and use inflation to devalue all assets instead of only shrinking the type of balance you have the least of. The poor store most of their value in their body and need to trade their body for money that they spend quickly, only the rich who can block their withheld money from being available and thereby extort interest payments from the rest of the economy. It is like you are arguing that the current system of exponential debt is somehow the height of morality.

philwelch 4y ago

That’s horrifying and I have a hard time imagining that sort of thing happening in any functional democracy.

mitthrowaway2 4y ago
You might, but the central banks don't! It's a recurring theme in published research papers by economists and by the central banks themselves. It's called "breaking through the zero bound" on monetary policy, or "removing the effective lower bound". The tone in these papers is universally that this would be desirable for the central bank, but hard for the public to accept. For example from the Fed: "The Case for Unencumbering Interest Rate Policy at the Zero Bound", https://www.kansascityfed.org/documents/7033/GoodfriendPaper_JH2016.pdf https://www.kansascityfed.org/documents/7033/GoodfriendPaper... > With these advantages in mind, the final portion of the paper describes in detail three methods by which the zero bound on interest rate policy can be unencumbered completely. The three methods in turn would: 1) abolish paper currency, 2) introduce a market-determined flexible deposit price of paper currency, and 3) provide electronic currency (to pay or charge interest) at par with deposits. Or the Bank of Canada's paper, "Is a Cashless Society Problematic?", https://www.bankofcanada.ca/2018/10/staff-discussion-paper-2018-12/ https://www.bankofcanada.ca/2018/10/staff-discussion-paper-2... > a cashless society could open the door to the prospect of negative interest rates to a greater extent than is currently possible. Most central banks are obligated by law to supply cash to the general public. To the extent that the economy becomes cashless, a central bank could request a change in its governing legislation to remove the obligation to supply cash to the public on demand (which is a significant step). In that case, in the absence of cash and of an obligation to supply it, a central bank would be able to lower interest rates to a more negative level than is currently possible to achieve stabilization or price stability goals.
- philwelch 4y ago
  > The tone in these papers is universally that this would be desirable for the central bank, but hard for the public to accept. Yeah, that’s putting it mildly! Isn’t this basically a wealth tax on the middle and working classes?
  - mitthrowaway2 4y ago
    Yes, on anyone who works to earn a wage rather than owning appreciating assets, basically. I don't know, maybe it won't happen. But the signs are all pointing in that direction, so I'm kind of resigned to it going that way eventually. Probably it will start by restrictions on large cash transactions, and on owning or carrying large amounts of cash. Then fees for withdrawing paper cash from bank accounts. Perhaps retailers will be allowed to add fees for cash transactions, too. The last step would be deprecating cash altogether, allowing banknotes to be deposited but not withdrawn (withdrawals will be as a CBDC). Just my guess on how it will go.
    - imtringued 4y ago
      >Yes, on anyone who works to earn a wage rather than owning appreciating assets, basically. People who work for their wage are utterly dependent on the benevolence of the rich who withhold their money from the market. Withholding money from being spent or saved is how you get unemployment and inequality. If anything people who work for money will appreciate that they are being paid and the people they pay will also appreciate it. The only people who won't appreciate are those who already have so much money they don't know what to do with it.
  - imtringued 4y ago
    A wealth tax on cash...? Are you kidding me? You can literally avoid it by going to the bank to save your money.
    - mitthrowaway2 4y ago
      You misunderstand. The bank would be giving you a negative interest rate, so your account balance would always be exponentially decaying. Cash would allow you to escape this, which is why it would be removed as an option.

imtringued 4y ago

>That's important, because central banks are considering negative interest rate policy, which would mean your bank account would drop by a percentage each month. Imagine the horror of having to pay a parking fee instead. Truly horrifying. How are we supposed to pretend that it is ours anymore and extort payments from other people by blocking all the free parking lots? >This would drive people to spend or invest their money, supporting consumption and inflating asset prices. You know, in neo classical economics the idea of not spending your money on consumption or investment or saving your money isn't even considered to be something that even happens (by that I mean in neo classics all saving happens at the bank anyway) So if you are against that then you leave central banks no choice other than to create exponentially growing quantities of money and use inflation to devalue all assets instead of only shrinking the type of balance you have the least of. The poor store most of their value in their body and need to trade their body for money that they spend quickly, only the rich who can block their withheld money from being available and thereby extort interest payments from the rest of the economy. It is like you are arguing that the current system of exponential debt is somehow the height of morality.