Willem Buiter: how about abolish currency COMPLETELY?10 May, 2012, 13:13. Posted by Zarathustra
Tags: Willem Buiter
Willem Buiter of Citi just came out with a note on what central banks around the world can do more to stimulate the economy.
His suggestions, however, contain something rather bizarre, which are at odds with what one of the Bank of England official said in a wonderful profile of Sir Mervyn King on the FT: “If you go to work in a central bank you’re not the sort of person who is going to say, ‘f*** it, I’m going to do something crazy today’”. So basically it means that some of these are not going to happen anyway.
So what are so bizarre that Willem Buiter is suggesting?
We think central banks in the US, euro area, Japan and UK could and should do much more, including
(i) reducing rates, first by lowering them all the way to zero (UK and euro area), then by eliminating the effective lower bound on nominal interest rates (all four currency areas)
(ii) carrying out more imaginative forms of quantitative easing (QE) & credit easing (CE), in all four currency areas, by focusing on outright purchases of and/or loans secured against less liquid and higher credit risk securities, subject to a sovereign guarantee (joint and several in the euro area) for all such risky central bank exposures
(iii) engaging in helicopter money drops (all four currency areas): a combined fiscal-monetary stimulus
And how could they do that? Specifically, to lower the effective lower found on nominal interest rates (emphasis mine):
The obvious solutions are: (1) abolishing currency completely and moving to E-money on which negative interest rates can be paid as easily as zero or positive rates; (2) taxing holdings of bank notes (a solution first proposed by Gesell (1916) and also advocated by Irving Fisher (1933)) or (3) ending the fixed exchange rate between currency and central bank reserves (which, like all deposits, can carry negative nominal interest rates as easily as positive nominal interest rates, a solution due to Eisler (1932)). These, by revealed preference, do not seem acceptable to the central banking and political establishments, despite the long history of proposals to implement these solutions (see e.g. Hall (1997), Goodfriend (2000), Buiter and Panigirtzoglou (2001, 2003), Fukao (2004), Buiter (2009, 2010) and Mankiw (2009).