Gregory Mankiw (textbook author) in 2009 said the Federal Reserve should adopt negative interest rates in attempt to inflate the credit/money supply. Where charging banks to hold reserves increases lending to borrowers with lower repayments and to prevent losses depositors withdraw cash. When banks hold excess reserves or people have cash rather than checking accounts, it restricts the ability for monetary policy to inflate the credit/money supply and reduces the money multiplier. Saving and investment would otherwise cease should a central bank make market interest rates negative in real terms. Note time preference and ordinary interest are positive.
Instead of calling in loans to make up for the loss in depositor’s cash (otherwise lend out) or outlawing cash altogether (like the US Gold Reserve Act of 1934 which outlawed most private possession of gold). Attempts at stimulating inflation must lead central banks to hold a monopoly on fiat money to prohibit any effective circulation of competing currency, or commodity money such as gold bullion/minted coins. Banks are forced to buy government bonds in return for the public’s cash stored in the vaults as people their withdraw cash. Now central banks may decide to limit cash in the hands of the public where negative rates (savers pay borrower to borrow) make it more expensive to withdraw cash charging an exchange ratio between a dollar of bank deposits and a dollar of currency, by whatever this exchange ratio is, Joseph Salerno explains the war on cash.
They then eliminate cash altogether to do this they start by eliminating large value bills as an excuse that criminals use them for transporting cash, see video one. In reality its the individuals within governments who want to steal wealth from the public, see in the news New York Times that saving will cost you.
Video one Carrying $1 Million in Cash Is Easier Than You’d Think
Source: (Beebe, 2016).
Salerno, J. (2015). The War on Cash. Retrieved [06/03/2016] from <https://mises.org/library/joseph-salerno-war-cash>.
Ming-Fat, R. (2016). Gold price soars amid negative interest rates. Ejinsight. Retrieved [06/03/2016] from <http://www.ejinsight.com/20160304-gold-price-soars-amid-negative-interest-rate/>.
Sommer, J. (2016). In the Bizarro World of Negative Interest Rates, Saving Will Cost You. New York Times. Retrieved [06/03/2016] from <http://www.nytimes.com/2016/03/06/your-money/in-the-bizarro-world-of-negative-interest-rates-saving-will-cost-you.html?_r=0>.
Beebe, D. (2016). How to carry $1 Million in cash. Bloomberg. Retrieved [06/03/2016] from <http://www.bloomberg.com/news/videos/2016-02-22/how-to-carry-1-million-in-cash>.
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Copyright © 2016 Zoë-Marie Beesley
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