According to an article “Get Ready for “Unencumbered” Interest Rate Policy” by James Rickards of the Daily Reckoning , negative interest rates in the USA could be on the cards in the future. Rickards elaborates what went on at the FED conference at Jackson Wyoming August 21, 2016. Even although Yellen was not in favour of negative interest rates, another speech by Marvin Goodfriend of Carnegie Mellon University, discussed “unencumbered” negative interest rate policy. The article is titled “The Case for Unencumbering Interest Rate Policy”. The speaker Goodfriend believes that the no.1 thing standing in the way of negative interest rates is CASH. In order to dissuade people from using cash instead of using digital bank accounts, he advocates a concept called “flexible market-determined deposit price of paper currency”.
According to Rickard’s interpretation of this concept, “this means the “money” in your bank account and the “money” in your purse and wallet would be like two different kinds of currency. There would be an exchange rate between the two, just as there is an exchange rate between dollars and euros. The Fed could set this exchange rate at whatever level it wanted and would not be obligated to “defend” that rate at any particular level.What this means is if you go to the bank and withdraw $1,000, the bank might only give you $980 in cash because of the “exchange rate” between your bank account and cash. Or if you deposit $1,000 in cash, the bank might only credit your bank account $980 because of the same “exchange rate”between your cash and the bank account balance. In short, it’s a way to impose negative interest rates.”
Although Goodfriend is an academic, his idea could be used as the basis for introducing negative interest rates in the US if the Fed decides to do so.
Once CASH is eliminated from the economy, the next assault will be on GOLD. Gold can be used in place of cash if there is a conversion to digital bank accounts. As an investor with retirement funds in your self-administered IRA, buy physical gold. If negative interest rates are introduced, demand for gold will increase for the physical metal, ETFs and gold mining stocks.
