Negative rates, abolishing cash, nominal illusion and neurosurgery

Miles Kimball's preferred solution to the current predicament, in which the zero, or quite near zero bound to central bank interest rates constrains the amount of stimulus that can be imparted, is to reform monetary institutions so that negative rates can be applied, with no more limit to how low they can go than there is with positive rates.

One option to permit this is to abolish cash.  With this done, negative interest rates can be applied to digital deposits in banks, with no risk that they will be out-competed by cash, which earns a higher interest rate of zero.

However, it's possible that banks are affected by nominal illusion on the part of some of their customers.   One reason put forward for the woes of bank shares has been that while the banks' asset side has rates that are competed, or even indexed down as bank rate falls, bank deposit rates cannot fall so much, nor be replaced by charges.  A reason being some psychological reaction to negative nominal rates akin to the disproportionate response to nominal wage cuts versus nominal wage rises that is discussed by labour economists.

If there is this kind of nominal illusion, abolishing cash isn't going to allow seamless transmission of negative nominal rates that matches those nominal interest rate rises the older generation remember fondly.  In fact, nothing will do it, short of some not yet thought of neurosurgery, except perhaps a rather painful learning process where circumstances slowly accustom depositors to the new reality.

In the meantime, however, negative rates would not guarantee regaining control of inflation.