EDITOR'S LETTERJohn Stepek
The move to abolish cash
It’s been seven years since the financial crisis blew up. Investors are hoping against hope that ‘normalisation’ is around the corner. Some even still expect the Federal Reserve to raise interest rates this year. Yet, behind the scenes, central bankers are becoming ever more radical.
Last week, Bank of England chief economist Andy Haldane gave a speech in Northern Ireland, in which he suggested a move to abolish cash. Surprised? Shocked? Haldane’s worried that we’re never getting back to ‘normal’ again. Interest rates are unlikely to be back up to pre-2008 levels by the time the next recession hits. So central banks will have little or no room to cut rates when the next downturn comes. That’s a problem.
One reason for cutting rates is to make cash less attractive to hold – so people spend it or invest it, stimulating the economy. But once you hit 0%, that stops working. If you turn rates negative, and charge people to hold money in the bank, they will switch to cash instead, and you can’t influence their spending any more.
The solution? A Bitcoin-style digital currency. Make money entirely digital. That allows you to impose negative interest rates. Knock it down to, say –3%, if you want to shake things up, and everyone’s digital accounts could be automatically docked £3 in every £100. Or we keep paper currency, but put a “sell-by” date on it – so that it has to be traded in regularly for ever-decreasing denominations. If that doesn’t have you reaching for gold bars or itching to swap all your pound notes for a currency managed by a less nutty-sounding bunch of economists, then I don’t know what will.
• Read the full editor’s letter here: The move to abolish cash