According to British media reported on the 10th, the chief economist at the Bank of England hopes the abolish of cash be able to implement negative interest rates to people with using digital currency instead.
Bank of England chief economist said that the global economy is entering a third phase of a protracted crisis: Following the 2008 - after the "Anglo-Saxon" crisis and the 2011 crisis in the eurozone, and now entering into another "disaster."
Since the interest rate is restrickted, the chief economist is worried that if the banks would set a negative interest rate, then people would turn to keep the money in cash by themselves, it might help to stimulate people to spend more money. And according to him, with using digital currency, they can set negative interest rates to stimulate consumptions.
5 comments:
Pretty soon cash will be extinct. Everything is trending more and more towards debit/credit card transactions with petty transactions being occupied by cash. Even if you have to pay someone back, Venmo takes care of it completely electronically. Also, these negative interest rates would make people's marginal propensity to consume increase, leaving no one to save with banks.
Although we are inevitably moving toward a more efficient "cashless society", many economists have concerns about the implications of such an economy. Solely relying on electronic money, it would be much more difficult to measure the money supply. Also, many forms of electronic money don't leave paper trails, which incentivizes illegal activity. Although the abolishment of cash sounds modern and updates, it could have detrimental effects.
I agree with Joey and feel that cash will only be found in museums in the future. I remember from my Monetary and Fiscal Policy class that widespread use of digital money could affect central banks in such areas as monetary policy, banking supervision and the stability of the financial systems. In addition to that, many elderly consumers are quite reluctant to give up the possession of a physical form of currency. They are mainly concerned about the issue of privacy and security with using electronic money, since unauthorized access can sometimes be done to certain consumer accounts in order to hack their personal data.
I agree with all of the statements above. It is inevitable, we are moving to a cashless society whether we like it or not. As more and more developed countries begin to use electronic forms of cash, or e-money as I learned it in my monetary and fiscal systems class, the global economy will become electronic. That is a fact. I truly believe that only those whom live in developing countries will have a physical representation of cash and soon one day, it will be looked at with disgust. I also whole heartedly agree with Akram that while many economists do not like like the idea of e-money due to the problems associated with its utilization, I think it is something that will one day be overcome with stronger security and identity theft measures. Each day more and more steps are taken to complete this transition and now, I think it is just a matter of time until all developed countries only have e-money as their form of currency.
Using digital currency to force negative interest rates is an interesting method, and to me seems quite corrupt. Similarly, banks have always been a place to keep your money safe, and if people are being forced to take their money out because of negative interest rates this might cause anger. However, negative interest rates would be a great way to stimulate the economy. Lastly, I agree with Kaley, I believe that more intangible methods of holding wealth will only cause more fraud. As more and more countries change to electronic cash we should expect an increased demand for data security specialists.
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