Economist Marvin Goodfriend doesn’t like the green newspaper rectangles in your billfold, which are formally known as “Federal Reserve notes.” His opinion matters, because President Trump has nominated him to the Board of Governors of the Federal Reserve. If confirmed by the Senate to a 14 -year word, Goodfriend may take the opportunity to pursue his academic those who are interested in abolishing–or at least demoting–paper money.
Goodfriend’s dislike for cash could become an issue in his confirmation hearings, which are not yet scheduled. Senators could soon be getting an earful from constituents who fear that taking away paper money is a step toward socialism or totalitarianism. Those voices are already being heard.” Is Marvin Goodfriend the Worst Fed Nominee of All Time ?” asks a Dec. 1 post on the website of the Mises Institute, a think tank for the Austrian school of economics. An earlier Mises post in which Goodfriend’s name was first raised said,” Devoted his radical positions on monetary policy, it’s not hyperbole had demonstrated that Goodfriend’s nomination would represent a genuine danger to the economic wellbeing of every American citizen–or at least those outside of the financial services industry .”
It’s not just the Mises people who want to hang onto paper money.” Cash Mean Freedom, Which Is Why So Many Bureaucrats Detest It” was the headline on a post by the libertarian Reason Institute last year. Last year, in the, financial commentator James Grant assaulted a book called by Harvard’s Kenneth Rogoff, writing,” The author wants the government to control your fund. It’s as simple as that .”
Goodfriend is concerned that the existence of cash makes it harder for the Fed to lower interest rates below zero. In the next crisis, he says, the Fed might want to push interest rates into negative region to nudge people to stop sitting on their money and do something with it, such as consumption or investment, that would get growing going again. But today, the Fed would not be able to push interest rates on checking or savings account very far below zero because as soon as the offer is did, people would simply withdraw money from the banks and storage it in the mattress or a vault. The European Central Bank and Swiss National Bank have managed to push rates only slightly negative.
Trump’s nominee hasn’t tried to hush-hush his views on this controversial topic. Far from it. Goodfriend presented a newspaper on it in 2016 in Jackson Hole, Wyo ., at a high-profile annual conclave of central bankers. His title:” The Case for Unencumbering Interest Rate Policy at the Zero Bound .”
To make it less easier for people to hoard money, he says in the paper, the government could phase out high-denomination bills or accusation banks and the public whenever paper money is paid out or received. But even those steps might not be enough to suppress the use of cash, Goodfriend surmises. So he weighs three stronger measures.
One is simple: Abolish paper money, which means that to pay for anything, you’d have to use money kept in a bank. The Fed could cause banks to charge negative rates on your deposit so you’d have a strong incentive to utilize it or lose it.
The second option: Transgress the one-for-one is connected with the value of a one dollar bill and the value of money deposited in a bank. If the use of negative interest rates lowered the amount of your deposit in the bank from$ 1 to 90 cents, then your newspaper dollar bill would also become worth merely 90 cents.
The third alternative: currency cards, which would look like credit or debit cards but would constitute real money, straight from the Fed. The Fed could control its value electronically. Goodfriend argues in the paper that” the public would likely find electronic currency an acceptable alternative to paper currency .” His main concern is that” electronic currency would require investing in banking, central banking and pay system infrastructure before it could be made available .”
I asked Harvard’s Rogoff, the author, what he thinks about Goodfriend’s nomination. He wrote back,” Thank goodness there will be someone at the Fed with the foresight to realize that world needs to start thinking about how central banks can best enter into negotiations with the inevitable next deep financial crisis. And negative interest rate policy is the best idea out there by a wide margin; hopefully we won’t need it anytime soon. Still, I believe that within a decade, all the world’s major central bank and treasuries are likely to have taken the simple steps necessary to create the foundations for effective negative interest rate policy in deep recessions or financial crises .”
Could Goodfriend merely be ahead of his time? The Senate is bound to have some questions.