## Monetary Policy with Negative Interest Rates: Decoupling Cash from Electronic Money

_IMF Working Papers, August 27, 2018_

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## Bibliographic details
- Authors: Katrin Assenmacher, Signe Krogstrup
- Published: August 27, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484370025.001

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### Summary
- Monetary policy space remains constrained by the lower bound 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.
- The paper considers the practical feasibility of recent proposals for decoupling cash from electronic money to achieve a negative yield on cash which would remove the lower bound constraint on monetary policy.
- The paper discusses how central banks could design and operate such a system, and raises some unanswered questions.

### Authors and Publication
- By Katrin Assenmacher, Signe Krogstrup
- August 27, 2018
- IMF Working Papers, Working Paper No. 2018/191

### Key themes and analysis
- Constraint on monetary policy:
  - Lower bound limits policy options to respond to deflationary shocks.
  - Cash circulation is identified as the mechanism preventing central banks from cutting interest rates much below zero.
- Proposal considered:
  - Decoupling cash from electronic money to impose a negative yield on cash, thereby removing the zero lower bound constraint.
- Design and operational considerations:
  - The paper discusses how central banks could design and operate a system that decouples cash from electronic money (details of specific design elements and operational steps are addressed in the paper).
- Open questions:
  - The paper raises several unanswered questions about feasibility, design, and implementation that would require further research and policy discussion.

### Subject areas and keywords
- Subject: Banking, Central bank policy rate, Currencies, Digital currencies, Financial services, Monetary policy, Money, Negative interest rates, Technology, Zero lower bound
- Keywords: cash amount, cash payment, cash price, cash yield, Central bank policy rate, Currencies, currency system, De-bundling cash, Digital currencies, Dual local currency regime, Global, handling company, Legal tender, Monetary policy framework, Negative interest rates, unit of account, WP, Zero lower bound

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_Source: https://www.imf.org/en/publications/wp/issues/2018/08/27/monetary-policy-with-negative-interest-rates-decoupling-cash-from-electronic-money-46076_