Central bank Quote by Neil Irwin
““Some grappled with the mind-bending question of why rates _can't_ go below zero. What if the Fed tried to set a negative interest rate--that is, effectively levying a tax on savings? Said Greg Mankiw, a Harvard economist and former White House adviser, at the Boston conference, "What a depositor is going to do is say, 'Well, if they're going to charge me money to keep my money at the bank, I'm just going to keep my money at home,' and the only thing you'll generate is a demand for safe assets--and by that I mean assets that are safes because they're going to be buying a bunch of safes so that people can put their money in their safes rather than in the bank." He added that one way around that problem suggested by a student, would be to declare currency with certain serial numbers invalid. "I won't say who he was," Mankiw said. "Because he may want to be a central banker one day.””
About This Quote
Source Speech: Boston Economic Conference, 2015
Discusses the challenges of implementing negative interest rates, noting that savers may withdraw cash, reducing demand for bank deposits and shifting to safe assets.
In simple terms: Negative rates may push people to keep cash at home.
Key Takeaway
Consider alternatives to discourage cash hoarding.
Themes
economics
monetary policy
behavioral finance
central banking
Mood
cautious
analytical
critical
Type
analytical
policy commentary
When to use this quote
- banking sector
- retail savers
- policy makers
- students proposing solutions
Key Concepts
negative rates
tax on savings
cash hoarding
safe assets
policy design
Questions to Reflect On
- How can policymakers make holding cash less attractive?
- What other tools could complement negative rates?
A Different Perspective
People may still prefer cash despite penalties, limiting policy effectiveness.
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