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Monetary Policy with Negative Interest Rates: De-linking Cash from Digital Money

Author

Listed:
  • Katrin Assenmacher

    (European Central Bank)

  • Signe Krogstrup

    (Danmarks Nationalbank)

Abstract

Monetary policy space remains constrained by the lower bound on nominal interest rates in many countries, limiting the policy options available to address future deflationary shocks. The existence of cash prevents central banks from cutting interest rates much below zero. In this paper, we consider the practical feasibility of recent proposals for de-linking cash from digital money to achieve a negative yield on cash which would remove the lower bound constraint on monetary policy. We discuss how central banks could design and operate such a system, and highlight some issues that require further research.

Suggested Citation

  • Katrin Assenmacher & Signe Krogstrup, 2021. "Monetary Policy with Negative Interest Rates: De-linking Cash from Digital Money," International Journal of Central Banking, International Journal of Central Banking, vol. 17(1), pages 67-106, March.
    • Handle: RePEc:ijc:ijcjou:y:2021:q:1:a:3
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    References listed on IDEAS

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    Cited by:

    1. Agur, Itai & Ari, Anil & Dell’Ariccia, Giovanni, 2022. "Designing central bank digital currencies," Journal of Monetary Economics, Elsevier, vol. 125(C), pages 62-79.
    2. Ahnert, Toni & Assenmacher, Katrin & Hoffmann, Peter & Leonello, Agnese & Monnet, Cyril & Porcellacchia, Davide, 2022. "The economics of central bank digital currency," Working Paper Series 2713, European Central Bank.
    3. Busch, Ramona & Memmel, Christoph, 2021. "Why are interest rates on bank deposits so low?," Discussion Papers 46/2021, Deutsche Bundesbank.
    4. Son, Jaemin & Ryu, Doojin & Webb, Robert I., 2023. "Central bank digital currency: Payment choices and commercial bank profitability," International Review of Financial Analysis, Elsevier, vol. 90(C).
    5. Nocciola, Luca & Zamora-Pérez, Alejandro, 2024. "Transactional demand for central bank digital currency," Working Paper Series 2926, European Central Bank.
    6. Toni Ahner & Katrin Assenmacher & Peter Hoffmann & Agnese Leonello & Cyril Monnet & Davide Porcellacchia, 2024. "The Economics of Central Bank Digital Currency," International Journal of Central Banking, International Journal of Central Banking, vol. 20(4), pages 221-274, October.

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    More about this item

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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