Hacker News Reader

Comment by mitthrowaway2 | Hacker News Reader

For example?

More importantly, this wouldn't be a tax on wealth, it would be a tax on savings, meaning it would disproportionately affect the less-wealthy and the less-credit-worthy, who tend to not own significant assets or have the borrowing power to buy them. In terms of the discrepancy with a wealth tax, imagine trying to save money to buy a house, except that the house price grows each year, due to negative interest rates, while your savings account shrinks by the same proportion. Perhaps it doesn't take much imagination, because it's similar to 2020's zero-interest-rate environment, but without the restraint of being bounded by zero.

View on HN

When people talk about central banks using negative interest rates to juice the economy, they mean the interest rate for borrowing, not for savings. They're related, but not tied to each other. The Fed lending money to my bank at a negative rate means my bank will be more likely to lend me money to open a business; it does not mean the bank would charge me interest on my savings (which would of course cause me to withdraw my money and close my account).

Are you imagining the government using digital currency to enact some kind of "shrinking money" policy that would have the effect of a negative savings rate? If so, why would they do that, and couldn't they do that regardless of whether the central bank lending rate is positive or negative?

> it does not mean the bank would charge me interest on my savings (which would of course cause me to withdraw my money and close my account).

Indeed. The reason why this matters, and becomes possible, with a CBDC is that there is nowhere left to "withdraw" to. Private banks would not offer you any higher rates on savings than the CBDC does (why would they, when they can borrow at the interbank rate for less?). The fact that account holders would withdraw if rates on savings became negative is why central banks presently are unable to reduce the interest rate (significantly) below zero. With a CBDC, "withdrawing" simply means transferring from your private bank account to your CBDC account.

It would not be the government enacting this policy, but the central bank itself, as a necessary step to conducting monetary policy below the zero bound.

> with a CBDC is that there is nowhere left to "withdraw" to

Why can't I use them to purchase dollars or yen? How did we get from the BofE issuing a currency that people can use to everyone being forced to use it? (Also, may I humbly suggest the wikipedia article on Gresham's Law, if you're not familiar with it: https://en.wikipedia.org/wiki/Gresham%27s_law)

I agree that bad things would happen if everyone was forced to use a currency they don't want to use, but that's kind of axiomatic.

It's the obvious logical conclusion. Much of Europe is already actively trying to eliminate cash for quite a few years now. So the notion that a CBDC is acceptable specifically because cash will still exist, and that people won't be actively prevented from using cash in the future, is utterly absurd in light of the facts on the ground.

I didn't mention cash at all, perhaps you meant to reply to a different comment?

> Private banks would not offer you any higher rates on savings than the CBDC does (why would they, when they can borrow at the interbank rate for less?)

The interbank rate has to be lower than 7% I'm sure, but that's what I have in a savings account.

Congratulations; you found a loss leader?

Yes, that's one of the many reasons why private banks would do it.

Reply on news.ycombinator.com