cash-hoarding believers
Today central banks employ monetary policies aimed at encouraging consumption. When interest rates go down, people are supposed to be more tempted to spend money on tangible goods and investments. Unfortunately this is not happenning so far. The interest rates hit almost zero and people still continue to hoard money and cut on consumption.
Interest rates cannot go below zero. If they ever did, you would simply pull your savings out of the deposit account and put them in a safe. So the essential question is how central banks can punish people for hoarding cash in a zero-interest rate environment.
Marvin Goodfriend suggested imposing a carry tax on money. Such a tax would effectively act as a negative interest rate. However the employment of such a policy is problematic for several reasons:
1) It is impossible to tell how much cash a person is really hiding under his pillow without constant (very costly) monitoring.
2) There may be a massive switch into another currency. (This problem could be dealt with if "prominent" nations are willing to coordinate and impose the same percentage of carry tax on their currencies.)
3) People may lose confidence in the fiat currency regime and resort to gold as a medium of exchange. (In order to avoid such a situation the government can resort to banning individuals from holding precious metals. Such a move may sound like a violation of basic, constitutionally granted liberties. But that should not be surprising. All fiat currency regimes contain a hidden element of coercion. Otherwise why would anyone be willing to hold pieces of paper that are backed by government bonds which are essentially just promissory notes that pay the same pieces of paper in future? Almost everyone suspects that the regime is constructed upon a web of faith. However, for some reason, some are unwilling to make the connection between faith and coercion. It is certainly not a coincidence that the history is littered with examples of religious faith and coercion feeding off from each other.)
Interest rates cannot go below zero. If they ever did, you would simply pull your savings out of the deposit account and put them in a safe. So the essential question is how central banks can punish people for hoarding cash in a zero-interest rate environment.
Marvin Goodfriend suggested imposing a carry tax on money. Such a tax would effectively act as a negative interest rate. However the employment of such a policy is problematic for several reasons:
1) It is impossible to tell how much cash a person is really hiding under his pillow without constant (very costly) monitoring.
2) There may be a massive switch into another currency. (This problem could be dealt with if "prominent" nations are willing to coordinate and impose the same percentage of carry tax on their currencies.)
3) People may lose confidence in the fiat currency regime and resort to gold as a medium of exchange. (In order to avoid such a situation the government can resort to banning individuals from holding precious metals. Such a move may sound like a violation of basic, constitutionally granted liberties. But that should not be surprising. All fiat currency regimes contain a hidden element of coercion. Otherwise why would anyone be willing to hold pieces of paper that are backed by government bonds which are essentially just promissory notes that pay the same pieces of paper in future? Almost everyone suspects that the regime is constructed upon a web of faith. However, for some reason, some are unwilling to make the connection between faith and coercion. It is certainly not a coincidence that the history is littered with examples of religious faith and coercion feeding off from each other.)
