IMF proposes to "clear" cash from electronic money

Interest rates in many countries around the world are still languishing at levels near zero since the last financial crash. This does not leave much room to move in the case of the next financial crash, for example. At least with regard to money. The Intentional Monetary Fund (IMF) has therefore sought solutions to make negative interest rates a viable option.

Less than zero

Recessions require tough measures, which have always resulted in a reduction of about 3-6% in base interest rates. But with many countries maintaining rates close to zero since the last financial crisis, this leaves them little room for maneuver.

The problem, of course, is cash, which has an interest rate below zero by definition. A negative base rate would force commercial banks to reduce their margins or charge interest on their deposits. And charging negative interest on deposits would likely result in a mbadive cash withdrawal.

The IMF notes that:

… Instead of paying negative interest, you can simply hold cash with no interest. Cash is a zero interest free option and serves as a floor for the interest rate.

So why not get rid of money?

Company without money

A cashless company would not be limited by a lower zero percent limit on interest rates. Central banks could reduce the rate to a negative figure, forcing consumers to pay interest on their deposits. This would encourage investment or simply spending money as a preferable option, which would boost the economy.

But if money exists, it can not happen. People would simply hold zero per cent instead of paying bank deposits in safes and mattresses.

It is interesting to note that countries such as Sweden, largely without cash, have already slightly lowered rates. The inconvenience and expense of leaving and holding large amounts of money discouraged most depositors from doing so.

However, cash payments still play an important role in many countries such as Japan, Switzerland and Hungary. People like the nature of 'P2p' (person to person).

Hard fork

The solution proposed by the IMF would be to establish a divorce between cash and electronic money by creating two separate currencies. In doing so, a central bank could generate cash as expensive as a negative interest rate bank deposit.

Sounds great, is not it? How can we make money more expensive? But, that's all, we must maintain the inflation target at all costs, according to the IMF. An excerpt reads as follows:

While a dual currency system challenges our preconceptions about the currency, countries could implement the idea by making relatively little change to the operating framework of the central bank. Compared to alternative proposals, this would have the advantage of completely freeing monetary policy from the lower zero limit. Its introduction would confirm the central bank's commitment to the inflation target, instead of raising doubts about it.

In any case, e-money (e-money) would pay the policy rate (positive or negative). The money would then have an exchange rate of electronic money. In case of negative interest, the exchange rate would depreciate at the same rate as the negative interest.

Prizes would be announced separately in e-money and cash. Therefore, in terms of goods or electronic money, the holding of cash has no advantage.

"This system of dual local currency would allow the central bank to apply a rate of interest as negative as necessary to counter a recession, without triggering mbadive substitutions in cash," reads in the statement. article.

Or you can always bring your full money suitcase to a ladle geezer you 've met on LocalBitcoins and exchange it for brilliant Bitcoin and no inflation.

Seriously. When banks provoke a new financial meltdown, tell us that they want to make sure all our money is worthless. At that time, will there still be faith in the banking system?

It is not surprising that Christine Lagarde, head of the IMF, thinks that financial technologies will "shake up the financial system".

Will central banks succeed in phasing out physical liquidity over the next 10 years? Share your thoughts below!

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