Link to Narayana Kocherlakota’s column “Want a Free Market? Abolish Cash” on Bloomberg View

Narayana Kocherlakota has now joined me in advocating the complete elimination of the zero lower bound, and done it with a nice free-market argument. You can see the whole article at the link above. Let me quote my favorite passage and the bit about me:

… governments – by issuing cash and managing inflation – put a floor on how low interest rates can go and how high asset prices can rise. That’s hardly a free market.

Like any government interference, this causes inefficiencies. By preventing the future prices of goods and services from rising too far above the current prices, it constrains demand for current goods and services. The weak demand, in turn, leads companies to hire less and invest less in the development of new technologies, leaving the work force underutilized and productivity low. Sound familiar? …

The right answer is to abolish currency and move completely to electronic cash, an idea suggested at various times by Marvin Goodfriend of Carnegie-Mellon University, Miles Kimball of the University of Colorado and Andrew Haldane of the Bank of England. Because electronic cash can have any yield, interest rates would be able go as far into negative territory as the market required.

To clarify my own position, I have no objection to a cashless economy, but I think some nations may need to eliminate the zero lower bound in the near future, and a nonpar exchange rate between paper currency and electronic money (with electronic money as the unit of account) can be implemented on much shorter notice than arranging things so that the economy can easily do without paper currency entirely. So my own emphasis–as you can see from my bibliographic post “How and Why to Eliminate the Zero Lower Bound: A Reader’s Guide”–has been on what might be seen as the transitional system of a taking paper off par to eliminate the zero lower bound rather than the total elimination of paper currency itself.