changing zeitgeist,” she wrote.
At the Bundesbank conference, attended by people affiliated with the cash payments divisions of central banks and others, researchers presented data on the increase in cash demand despite the decline of cash transactions at the point of sale. People are increasingly paying with their mobile phone or cards, but at the same time, negative interest spotlights the cost of bank deposits, suddenly making cash a smarter option for savings. At the conference, lighthearted disagreements over whether to call this “cash hoarding” gave way to more insistent pleas for what some called “non-transactional” cash to be recognized as a rational response to negative interest with consequences for commercial banking and banknote design. If people are going to hoard cash, then perhaps banks need to get into the business of building vaults. And if people are going to want cash as a store of value resistant to negative interest, perhaps innovative banknote design should support hoarding: the cash should be more durable, stackable, maybe smaller than a standard banknote, and able to be kept in a cupboard and easily stashed in a backpack, should one need to escape a natural disaster, political instability, or war.
These were European designers, talking about European banknotes. This is a changing zeitgeist indeed.
Cash limits just how low interest rates can go, unless governments find a way to levy and enforce a tax on cash. Cash holdings are an alternative to paying the bank to hold your deposits—at least until the cost of storage, security and insurance approach the cost of paying negative interest. Hence: vaults. If for everyday transactions cash serves as a control mechanism for consumption (the pain of seeing your cash go away introduces a mental speed-bump in your spending), at the monetary policy level cash is a control mechanism defining a limit to the “innovative” monetary policies we have seen since the global financial crisis.
To read the full discussion, please visit https://justmoney.org/b-maurer-money-at-the-zero-lower-bound/.