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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 re

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?

mitthrowaway2 4y ago
> 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). Indeed. The reason why this matters, and becomes possible, with a CBDC is that there is nowhere left to "withdraw" to. Private banks would not offer you any higher rates on savings than the CBDC does (why would they, when they can borrow at the interbank rate for less?). The fact that account holders would withdraw if rates on savings became negative is why central banks presently are unable to reduce the interest rate (significantly) below zero. With a CBDC, "withdrawing" simply means transferring from your private bank account to your CBDC account. It would not be the government enacting this policy, but the central bank itself, as a necessary step to conducting monetary policy below the zero bound.
- IanCal 4y ago
  > Private banks would not offer you any higher rates on savings than the CBDC does (why would they, when they can borrow at the interbank rate for less?) The interbank rate has to be lower than 7% I'm sure, but that's what I have in a savings account.
  - mitthrowaway2 4y ago
    Congratulations; you found a loss leader?
    - IanCal 4y ago
      Yes, that's one of the many reasons why private banks would do it.
- ineptech 4y ago
  > with a CBDC is that there is nowhere left to "withdraw" to Why can't I use them to purchase dollars or yen? How did we get from the BofE issuing a currency that people can use to everyone being forced to use it? (Also, may I humbly suggest the wikipedia article on Gresham's Law, if you're not familiar with it: https://en.wikipedia.org/wiki/Gresham%27s_law https://en.wikipedia.org/wiki/Gresham%27s_law) I agree that bad things would happen if everyone was forced to use a currency they don't want to use, but that's kind of axiomatic.
  - d110af5ccf 4y ago
    It's the obvious logical conclusion. Much of Europe is already actively trying to eliminate cash for quite a few years now. So the notion that a CBDC is acceptable specifically because cash will still exist, and that people won't be actively prevented from using cash in the future, is utterly absurd in light of the facts on the ground.
    - ineptech 4y ago
      I didn't mention cash at all, perhaps you meant to reply to a different comment?

mitthrowaway2 4y ago

> 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). Indeed. The reason why this matters, and becomes possible, with a CBDC is that there is nowhere left to "withdraw" to. Private banks would not offer you any higher rates on savings than the CBDC does (why would they, when they can borrow at the interbank rate for less?). The fact that account holders would withdraw if rates on savings became negative is why central banks presently are unable to reduce the interest rate (significantly) below zero. With a CBDC, "withdrawing" simply means transferring from your private bank account to your CBDC account. It would not be the government enacting this policy, but the central bank itself, as a necessary step to conducting monetary policy below the zero bound.

IanCal 4y ago
> Private banks would not offer you any higher rates on savings than the CBDC does (why would they, when they can borrow at the interbank rate for less?) The interbank rate has to be lower than 7% I'm sure, but that's what I have in a savings account.
- mitthrowaway2 4y ago
  Congratulations; you found a loss leader?
  - IanCal 4y ago
    Yes, that's one of the many reasons why private banks would do it.
ineptech 4y ago
> with a CBDC is that there is nowhere left to "withdraw" to Why can't I use them to purchase dollars or yen? How did we get from the BofE issuing a currency that people can use to everyone being forced to use it? (Also, may I humbly suggest the wikipedia article on Gresham's Law, if you're not familiar with it: https://en.wikipedia.org/wiki/Gresham%27s_law https://en.wikipedia.org/wiki/Gresham%27s_law) I agree that bad things would happen if everyone was forced to use a currency they don't want to use, but that's kind of axiomatic.
- d110af5ccf 4y ago
  It's the obvious logical conclusion. Much of Europe is already actively trying to eliminate cash for quite a few years now. So the notion that a CBDC is acceptable specifically because cash will still exist, and that people won't be actively prevented from using cash in the future, is utterly absurd in light of the facts on the ground.
  - ineptech 4y ago
    I didn't mention cash at all, perhaps you meant to reply to a different comment?