Is this the wave of the future?:

Central bank policymakers had believed they had run out of room to support their respective economies, with their interest rates held close to the floor.

…Cut rates too deeply, [they thought], and savers would end up facing negative returns. In that case, this could encourage people to take their savings out of the bank and hoard them in cash…

[But as] central bank rates have turned negative, the rates offered on bank deposits have followed. Yet rather than stuffing cash under mattresses, people have left their money in the bank or spent it.

This is already happening in Sweden.

One of my first thoughts on reading that people are not pulling their money out of the banks was that perhaps the Swedes are just used to the habit of banking and don’t quite know where else to put their money. After all, a few hundred thousand kronor would be hard to stuff under a mattress, and perhaps anxiety-provoking. And it is true that Sweden already has a very high savings rate.

But wait; it actually may become worse. Some folks in charge have gotten the bright idea of giving people no alternative to banking it or investing it:

One solution is to give savers nowhere else to go. This idea was floated by the Bank of England’s chief economist in recent weeks, who made the case that sub-zero rates will be needed in the near future.

Andy Haldane, a member of the Monetary Policy Committee (MPC), the UK’s equivalent of the FOMC suggested that to achieve properly negative rates, the abolition of cash itself might be necessary.

Apparently, that’s one reason why the negative interest policy has been successful in Sweden, which is reported to already be practically cashless. If people aren’t used to cash anymore, they may be willing to pay to avoid using it. Of course, cash has the advantage of usually being untraceable, and people may come to value that aspect of it.

The planners aren’t going to boil that cash frog all at once, though. They’ll do it slowly, carefully:

No politician is likely to prohibit cash entirely, at least not until it has already all but disappeared from day to day life. Concerns about surveillance and the power of the state are likely to grow, as electronic money is completely traceable.

“Cash is useful for small transactions, and until it disappears naturally, I would be loathe to say let’s outlaw it,” says Sir Charles.

“Sir Charles” is Sir Charles Bean, former deputy governor at the Bank of England. One of the first steps will be to outlaw large-denomination notes, which are often used in drug transactions.

If you think about it, cash is a form of liberty, isn’t it?

[Neo-neocon is a writer with degrees in law and family therapy, who blogs at neo-neocon.]


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