Martin Sandbu and Silvio Gessel

Here Martin picks up on the Haldane speech about negative rates, and some of us that criticised him for supporting that option to escape the confines of the zero bound.

MS rightly points out that one would not need to abolish cash altogether, describing a scheme that goes back to the originator, Sylvio Gesell, where cash has to be 'exchanged' or as originally envisaged 'stamped', to show that the relevant tax has been paid on it.

However, under such a system, if I understand it correctly, we would carry around portfolios of notes that were all worth something different from their par/face value, prorportional to the time elapsed since the last 'exchange'.

So cash's usefulness as a medium of exchange would be sorely tested for all except those endowed with exceptional ability in the mental arithmetic of compound interest.  There would also be another verification needed, not just to check that the note is not a forgery, but that the time until next exchange is what the bearer claims it to be.

Those in favour of negative rates might not balk at such a problem.  The bound on rates would be the average mandated tax on cash, plus something that quantified the extra inconvenience of managing cash balances coming from the difficulty in evaluating their worth.  More bang for your negative rates buck.

However, when we have such simple alternatives as proper forward guidance, credit easing, and disciplined use of discretionary fiscal policy, my inclination is to confine a cash reform like this to academic discussion for now.