Monetary Policy with Negative Interest Rates: Decoupling Cash from Electronic Money

32 Pages Posted: 1 Oct 2018

See all articles by Katrin Assenmacher

Katrin Assenmacher

European Central Bank (ECB)

Signe Krogstrup

National Bank of Denmark - Economics Department; Danmarks Nationalbank (The Central Bank of Denmark); IMF

Date Written: August 2018

Abstract

Monetary policy space remains constrained by the lower bound in many countries, limitingthe policy options available to address future deflationary shocks. The existence of cashprevents central banks from cutting interest rates much below zero. In this paper, we considerthe practical feasibility of recent proposals for decoupling cash from electronic money toachieve a negative yield on cash which would remove the lower bound constraint onmonetary policy. We discuss how central banks could design and operate such a system, andraise some unanswered questions.

Keywords: Central banks and their policies, Monetary policy, Negative interest rates, Currencies, Zero lower bound; Monetary policy framework, Dual local currency regime, Legal tender, Zero lower bound, Monetary policy framework, Monetary Policy (Targets, Instruments, and Effects)

JEL Classification: E42, E52, E58

Suggested Citation

Assenmacher, Katrin and Krogstrup, Signe, Monetary Policy with Negative Interest Rates: Decoupling Cash from Electronic Money (August 2018). IMF Working Paper No. 18/191. Available at SSRN: https://ssrn.com/abstract=3257357

Katrin Assenmacher (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Signe Krogstrup

National Bank of Denmark - Economics Department ( email )

1093 Copenhagen
Denmark

Danmarks Nationalbank (The Central Bank of Denmark) ( email )

Havnegade 5
Copenhagen, 1093
Denmark

IMF ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
161
Abstract Views
910
rank
187,226
PlumX Metrics