Cash & the Zero Lower Bound
The Zero Lower Bound in interest rates is caused by the presence of cash, which has a 0% nominal rate. It complicates things when central banks want to go to negative rates to stimulate spending. The general idea is that money needs to circulate to increase velocity and inflation.
There have been various ideas to make cash go negative, breaking the Bound. In the 1890s, for example, Silvio Gesell argued for a stamp tax on banknotes. They would become of zero value if not given a new stamp on a regular basis. (See Vipin Bharathan’s article on this.) By paying additional money for the stamp, the value of the stamped note would go negative (a below 0 return). Part of the idea was to increase the velocity of money during a recession. Such ideas were resurrected during the Great Depression in the 1930s.
The idea was renewed by Marvin Goodfriend in 1999/2000. He argued that banknotes should be time stamped, visually and via a magnetic strip. This would impose a carry tax. “A carry tax could be deducted from each bill upon deposit according to how long the bill was in circulation since last withdrawn.” Again, the idea is to increase velocity.
In a 2015 IMF paper, the authors propose charging fees for cash deposits and withdrawals at a central bank’s Cash Window. This would give cash a negative rate of return. This cash valued at below par would be spread by secondary banks to the rest of the economy. However, consumers would not feel the pinch because banks and retailers would absorb the losses in order to keep customers.
My main concern with this plan is that it does nothing to increase monetary velocity. If consumers are unaffected by the negative rate, why should they change behavior and increase spending? And, the losses incurred by retailers would not help the economy. So, yes, the plan does give you a negative rate on cash, but it has no stimulating effect.
Personally, I want a cryptobanknote that is a physical token for a CBDC, allowing for negative rates via smart contracts in the CBDCs.