Intentional Monetary Fund (IMF) Suggests Phasing Out Physical Cash in Favor of Electronic Currency (e-Money)
Ever since the market meltdown of 2008, economic interest rates in many countries have continued to remain around the zero-level mark.
In this regard, a spokesperson for the International Monetary Fund (IMF) recently went on record to state that the financial body is currently in the process of looking at solutions that can make “negative interest rates a viable option” for its clients.
More on the Subject Matter
When looked at from a historical perspective, periods of recession usually result in a 3-6 percent cut from national interest base rates. However, since a whole host of nations are currently maintaining near-zero rates at the moment, they don't have enough wiggle room to work with.
The problem with this setup however, is that a “negative base rate conventionally requires commercial banks to either compress their margins or charge interest rates on deposits”. In regards to the matter, a report released by the IMF contains the following passage:
“…instead of paying negative interest, one can simply hold cash at zero interest. Cash is a free option on zero interest, and acts as an interest rate floor.”
Are We Heading Towards a Cashless Society
Some of our readers may already know, a cashless society is not necessarily bound by interest rates of zero percent. For example, Central banks have always had the option of reducing interest rates to a negative figure— thereby forcing consumers to dole out regular interests on deposits.
At this point in the article, it is also worth mentioning that countries that are largely cashless (such as Sweden, Norway) already have interest rates that are below zero. As a result of this, many depositors are deterred from taking out and holding on to large amounts of cash.
Other Key Points Worth Noting
As per a solution proposed by the IMF recently, the financial body wants to enact a divorce between cash and electronic money— thereby creating two seperate monetary offerings for the masses.
On this subject, a recent circular published on the IMF website states:
“While a dual currency system challenges our preconceptions about money, countries could implement the idea with relatively small changes to central bank operating frameworks. In comparison to alternative proposals, it would have the advantage of completely freeing monetary policy from the zero lower bound. Its introduction would reconfirm the central bank’s commitment to the inflation target, rather than raise doubts about it.”
The post then goes on to add that a dual-local-currency system will help allow central banking institutions to “implement as negative an interest rate as necessary” so as to counter recession-related issues (without calling into effect any large-scale substitutions into cash.)