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Nonconvertibility is a forseeable next step. I imagine first there would be a fee for converting to cash (eg. if you "withdraw" 100 digital pounds, you get 90 p

Nonconvertibility is a forseeable next step. I imagine first there would be a fee for converting to cash (eg. if you "withdraw" 100 digital pounds, you get 90 paper ones). Then the decreasing popularity of paper pounds would be used as a basis for eliminating them entirely: going forward, paper pounds could be deposited for digital, but not withdrawn. Next, the bank starts applying negative interest rates when they need to "stimulate" asset prices and keep the stock market from crashing. No longer worried that people will pull cash out of their account to stuff under a mattress, your bank account starts dropping by 5% or 10% per year...

bsdz 4y ago
> Next, the bank starts applying negative interest rates when they need to "stimulate" asset prices and keep the stock market from crashing. No longer worried that people will pull cash out of their account to stuff under a mattress, your bank account starts dropping by 5% or 10% per year... Can't they do this already by increasing money supply or QE? Central bank's can already create inflation which isn't dissimilar to negative interest rates.
- mitthrowaway2 4y ago
  QE is effectively an interest-rate cut but for long-term bonds rather than short term. It would typically be used in conjunction with control of the overnight rate, which still struggles with the zero-lower-bound unless the ability to hold cash is removed from the system.
- deleted 4y ago
  [deleted]
mywittyname 4y ago
> No longer worried that people will pull cash out of their account to stuff under a mattress, your bank account starts dropping by 5% or 10% per year... Why would they do this? There's already a much more streamlined legal mechanism for this: taxes. Plus, this isn't some new feature. If the government orders you assets frozen/seized, then a bank is going to comply with the order. > I imagine first there would be a fee for converting to cash (eg. if you "withdraw" 100 digital pounds, you get 90 paper ones). Again, not new. This is basically an ATM fee. Paper money has costs associated with it, whether that cost is paid explicitly (through fees) or behind the scenes (collecting fees from purchases, selling information about you to third parties, or "borrowing" your deposits to collect interest on it) is pretty much irrelevant. Nothing you're saying is a "new" feature of digital currency.
- mitthrowaway2 4y ago
  Taxes are generally set in proportion to income, not savings. ATM fees are limited by competition to close to the bank's actual costs, rather than a deliberate policy to eliminate paper currency in circulation; if they charged upwards of 10% on withdrawals, people would very likely leave.
  - kwere 4y ago
    wealth taxes exist
    - mitthrowaway2 4y ago
      For example? More importantly, this wouldn't be a tax on wealth, it would be a tax on savings, meaning it would disproportionately affect the less-wealthy and the less-credit-worthy, who tend to not own significant assets or have the borrowing power to buy them. In terms of the discrepancy with a wealth tax, imagine trying to save money to buy a house, except that the house price grows each year, due to negative interest rates, while your savings account shrinks by the same proportion. Perhaps it doesn't take much imagination, because it's similar to 2020's zero-interest-rate environment, but without the restraint of being bounded by zero.
      - ineptech 4y ago
        When people talk about central banks using negative interest rates to juice the economy, they mean the interest rate for borrowing, not for savings. They're related, but not tied to each other. The Fed lending money to my bank at a negative rate means my bank will be more likely to lend me money to open a business; it does not mean the bank would charge me interest on my savings (which would of course cause me to withdraw my money and close my account). Are you imagining the government using digital currency to enact some kind of "shrinking money" policy that would have the effect of a negative savings rate? If so, why would they do that, and couldn't they do that regardless of whether the central bank lending rate is positive or negative?
deleted 4y ago
[deleted]

bsdz 4y ago

> Next, the bank starts applying negative interest rates when they need to "stimulate" asset prices and keep the stock market from crashing. No longer worried that people will pull cash out of their account to stuff under a mattress, your bank account starts dropping by 5% or 10% per year... Can't they do this already by increasing money supply or QE? Central bank's can already create inflation which isn't dissimilar to negative interest rates.

mitthrowaway2 4y ago
QE is effectively an interest-rate cut but for long-term bonds rather than short term. It would typically be used in conjunction with control of the overnight rate, which still struggles with the zero-lower-bound unless the ability to hold cash is removed from the system.
deleted 4y ago
[deleted]

mywittyname 4y ago

> No longer worried that people will pull cash out of their account to stuff under a mattress, your bank account starts dropping by 5% or 10% per year... Why would they do this? There's already a much more streamlined legal mechanism for this: taxes. Plus, this isn't some new feature. If the government orders you assets frozen/seized, then a bank is going to comply with the order. > I imagine first there would be a fee for converting to cash (eg. if you "withdraw" 100 digital pounds, you get 90 paper ones). Again, not new. This is basically an ATM fee. Paper money has costs associated with it, whether that cost is paid explicitly (through fees) or behind the scenes (collecting fees from purchases, selling information about you to third parties, or "borrowing" your deposits to collect interest on it) is pretty much irrelevant. Nothing you're saying is a "new" feature of digital currency.

mitthrowaway2 4y ago
Taxes are generally set in proportion to income, not savings. ATM fees are limited by competition to close to the bank's actual costs, rather than a deliberate policy to eliminate paper currency in circulation; if they charged upwards of 10% on withdrawals, people would very likely leave.
- kwere 4y ago
  wealth taxes exist
  - mitthrowaway2 4y ago
    For example? More importantly, this wouldn't be a tax on wealth, it would be a tax on savings, meaning it would disproportionately affect the less-wealthy and the less-credit-worthy, who tend to not own significant assets or have the borrowing power to buy them. In terms of the discrepancy with a wealth tax, imagine trying to save money to buy a house, except that the house price grows each year, due to negative interest rates, while your savings account shrinks by the same proportion. Perhaps it doesn't take much imagination, because it's similar to 2020's zero-interest-rate environment, but without the restraint of being bounded by zero.
    - ineptech 4y ago
      When people talk about central banks using negative interest rates to juice the economy, they mean the interest rate for borrowing, not for savings. They're related, but not tied to each other. The Fed lending money to my bank at a negative rate means my bank will be more likely to lend me money to open a business; it does not mean the bank would charge me interest on my savings (which would of course cause me to withdraw my money and close my account). Are you imagining the government using digital currency to enact some kind of "shrinking money" policy that would have the effect of a negative savings rate? If so, why would they do that, and couldn't they do that regardless of whether the central bank lending rate is positive or negative?

deleted 4y ago

[deleted]