I highly recommend Ken Rogoff’s new book, The Curse of Cash. It has several chapters that touch on my proposal to engineer a nonzero rate of return on paper currency by taking paper currency off par. The other main part of the book is about the crime-control benefits of eliminating high-denomination bills–and perhaps having physically large, but low-value coins as the only form of hand-to-hand currency.
I was an official reviewer of the book, and in that capacity strongly urged the publisher to get the book in print as soon as possible. Here is my blurb that is included in the book:
The Curse of Cash is brilliant and insightful. In addition to giving a vivid picture of the cash-crime nexus, The Curse of Cash is the book everyone should read about negative interest rates. –Miles Kimball
Ana Swanson of Wonkblog interviewed Ken Rogoff about The Curse of Cash. Here are some interesting quotations from Ken Rogoff in that interview that focus on monetary policy:
1. … the fact that monetary policy has been paralyzed because of the zero lower bound has hurt, and it will hurt in the next recession. The European Central Bank, the Nordic central banks, the Bank of Japan, they have tiptoed into negative rate territory, but they haven’t been able to do much, because they’re worried about the run into cash.
If you look at what’s happened in Europe and Japan, Japan has done quantitative easing on a scale that’s already triple what the U.S. has done. Europe is on track to buy up 20 percent of all corporate bonds within the time frame of their new quantitative-easing policy, and it’s not working very effectively. I think negative interest rates would be vastly more effective. Central bankers can’t come out and say that, but I think they all wish they had that tool. Not so they could use it today, but if something really bad happens.
2. There are other ways to do it. You can basically tax currency, by charging people when they turn currency in at the bank, which is an idea that I trace back to Kublai Khan.
3. … if you can go to a negative interest-rate policy, it’s going to depreciate the exchange rate. That said, if you wait a year or two after the policy, the negative interest rate will be gone, the U.S. economy will have strengthened, and the dollar might be higher than where it started. It’s certainly going to be controversial, but it might not be as bad as what we have now. Now no one really knows what central banks are going to do, because they’re flailing away at the zero bound trying to find something that works, and it creates an enormous amount of uncertainty.
So negative interest rates are going to come. Central bankers need them in the current environment. In 10 to 15 years, certainly in 20 years, if it’s needed, they’ll have figured out how to do it. And when they finally find a way, I think it will be regarded as leading to a better and healthier financial system.
The second quotation is referring elliptically to my proposal, which Ken discusses in detail, quite approvingly, in the book.