To Fight Deflation, Abolish Cash. Could Japan Make Reality Of ‘science Fiction’?

[interestrateripoff]

http://business.timesonline.co.uk/tol/busi...icle6531299.ece

With recovery elusive, a population doddering into old age and perhaps a decade of deflation in prospect, Japan may start mulling the most radical monetary policy of all — the abolition of cash.

Unorthodox, untried and, said one Bank of Tokyo Mitsubishi strategist, “in the realms of economic science fictionâ€, the recommendation has nevertheless begun floating around Tokyo’s corridors of power and economists have described Japan as particularly suitable as a testing ground.

The search for more outré economic policies continues, despite the recent surge in the Nikkei 225 index.The market may be reflecting soaring Chinese investment, rising consumer confidence and other cheerful data but economists see few long-term beacons of hope for Japan.

Other extreme ideas mooted by the financial authorities include a tax on physical currency or introducing one to operate alongside the yen.

All three ideas are based on a theory concerning interest rates and the concept that a nominal rate of zero — as Japan has now lived with for much of the past decade — may be too high. In Japan’s case, the theory would suggest that nominal rates of -4 per cent might be closer to what is required to rescue the economy from another deflationary spiral. Having agreed that this might be necessary, the next question is how it could be imposed.

Several MPs in the ruling Liberal Democratic Party believe the abolition of cash, though politically radioactive, might be technically feasible. Richard Jerram, a senior economist with Macquarie bank, told investors that “the proposal has become practical with the broad penetration of electronic money and credit cards in Japanâ€.

He said that all the proposals were radical but worth consideration for Japan. Without physical cash, a central bank can set rates exactly where it likes, runs the argument. Mr Jerram said: “At the heart of the problem of achieving negative nominal interest rates is the idea that physical currency is an anonymous bearer bond with a nominal interest rate of zero.†While a central bank can impose positive or negative rates on non-physical assets, transmitting those rates to physical currency is a huge challenge. By permanently removing cash from a system, he added, policymakers are robbed of the excuse that zero is the lowest that nominal rates can go as a deflation-fighting tool.

In theory, many Japanese could easily make the leap into a cashless world. The country has six main competing cashless payment systems, many of them embedded into mobile phones. Including Oyster-type cards issued by public transport companies, industry sources estimate that there are about 120 million cashless payment chips sitting in Japan’s wallets and handbags, waiting to be swiped.

Nevertheless, the country remains a wholeheartedly cash-based consumer society. Currency in circulation is about 16 per cent of its GDP, compared with the levels of 2 to 3 per cent in most developed countries. Reducing that 16 per cent to zero would be a wrench but would come with considerable benefits, Mr Jerram said.

But just as Japan’s cultural attachment to cash may prove hard to dislodge, some economists believe that the same may be true of deflation. The country’s growing population of elderly people mainly hold cash or cash equivalents and, compared with its US and European counterparts, the Bank of Japan has come under virtually no political pressure to be more belligerent in its war on deflation. It is unlikely, added Mr Jerram, to brook anything as radical as abolishing cash.

Hmmm solve an economic crisis with an experiment. I'm onboard!!!!!

One solution is to tax the currency, Labour will like that idea.

Is cash really evil?

Certainly a totally electronic currency would allow unprecedented govt snooping on individual transactions.

[AvidFan]

So I guess this would take the form of confiscation of a percentage of your money held in electronic form, month by month, forever, thereby forcing you to work much harder, invest or speculate to make the total amount stay the same.

Insane. Expect traditional forms of wealth preservation (you know what I’m talking about) to skyrocket if this is ever implemented.

Coming to a fallen empire near you shortly, perhaps?

[lithanwif]

I work in IT. I've noticed that a lot of my colleagues do "homer's". Usually this gives them a little cash which they then go out and spend and the govt gets their cut, and the economy is boosted.

I wonder how much this would be affected by,"You fix my PC network and I'll weld you're car for it's MOT"?

[Kinky John]

http://business.timesonline.co.uk/tol/busi...icle6531299.ece

Hmmm solve an economic crisis with an experiment. I'm onboard!!!!!

One solution is to tax the currency, Labour will like that idea.

Is cash really evil?

Certainly a totally electronic currency would allow unprecedented govt snooping on individual transactions.

It's interesting because unlike inflation it is so immediately apparent what the effect actually is. A policy of encouraging people to keep their nose in the rat race and be a good little consumer speculator because there is insuficient stability in the value of what they own to plan for the future.

I have a radical alternative idea; accept the end to growth and allow the economy to find it's own balance point. For the economy to behave this way it must be strongly out of balance - the life support must be removed so the dead bits can die and make way for productive industry. I mean, their credit boom was almost as nuts as our's - what do they bloody expect!

[Timm]

At least it would get rid of the charade "...promise to pay the bearer on demand...".

There would be no bearers.

[gravity always wins]

I'm slightly at a loss to see why this would actually prevent deflation its merely money in a different form.

What this would allow is the ability to print money without printing it (but we kind of do that anyway don't we?)

This is another example of the state using an emergency to increase its control on the population.

Thinking about it if all Japanese money was digital then it would be possible for them to introduce negative interest rates and there would be no way to avoid it.

Mmmmm

[stuckmojo]

Fantastic.

The side effect would be the re-introduction of barter. People with real skills will thrive. I can't wait

[Ruffneck]

it'd be a pain buying stuff at jumble sales , trader papers etc

cash is king!

[Tiger Woods?]

So I guess this would take the form of confiscation of a percentage of your money held in electronic form, month by month, forever, thereby forcing you to work much harder, invest or speculate to make the total amount stay the same.

Insane. Expect traditional forms of wealth preservation (you know what I’m talking about) to skyrocket if this is ever implemented.

Coming to a fallen empire near you shortly, perhaps?

Expect the government to ban private ownership of the traditional forms of wealth preservation if this were to happen.

FFS, they would have to play this very carefully not to find themselves lynched in the streets. It is one thing to steal people's money with inflation...that seems to be invisible to most people as the score card doesn't obviously drop...but if you start actually reducing the number of digits people own...oooooh....my aged mum'll be rioting in the streets.

[Guest DissipatedYouthIsValuable]

The thing about having a cash economy is that you can't bully the population effectively.

If they can go on handing bits of cash around to each other without the flow back to the banks following debt then you can't really tell them how to run their lives.

I'm all for every economy being a cash economy.

Scarcity of money with drip feeding from a gang of evil bastards at the top is starting to smell a little.

[aa3]

Japan could do a national dividend funded by QE, and just increase the monthly amount until inflation eventually gets to the target. But authorities around the world seem rabidly against this idea. In fact they would rather see their economies crash to nothing than give even the smallest amounts to their people.

[sundance_kid]

It’s a desperate measure to cling on to power on an ever-growing tide of social change that will come. If they could look past the end of their desk they’d see the tide gushing in.

They’re worried that men in Japan are perhaps starting to turn their backs to the cutthroat executive lifestyles they cannot obtain anyway.

The high rate of suicide, the growing incidents of seemingly normal young men suddenly snapping and mowing down bystanders.

Now they’re panicking about the rise of "grass-eating men†there apparently

Looking past the obvious ‘gay’ innuendoes, it’s pretty obvious these guys are rejecting consumerism.

Media Shakers, a consulting company that is a subsidiary of Dentsu, the country's largest advertising agency, estimates that 60 percent of men in their early 20s and at least 42 percent of men aged 23 to 34 consider themselves grass-eating men.

Grass eaters

[Injin]

Great idea.

They'd be irrelevent, bankrupt and obsoloete within 18 months.

[Jay76]

I work in IT. I've noticed that a lot of my colleagues do "homer's". Usually this gives them a little cash which they then go out and spend and the govt gets their cut, and the economy is boosted.

I wonder how much this would be affected by,"You fix my PC network and I'll weld you're car for it's MOT"?

I also work in IT and am currently engaged in something very similar. I am fixing a website for a large tyre company and am unwilling to contribute to the cost of MP's drawbridge wax and moat widening etc, so I am getting new tyres fitted to my car as payment.

If you don't like a government, simply avoid using its money wherever possible.

[Guest DissipatedYouthIsValuable]

It’s a desperate measure to cling on to power on an ever-growing tide of social change that will come. If they could look past the end of their desk they’d see the tide gushing in.

They’re worried that men in Japan are perhaps starting to turn their backs to the cutthroat executive lifestyles they cannot obtain anyway.

The high rate of suicide, the growing incidents of seemingly normal young men suddenly snapping and mowing down bystanders.

Now they’re panicking about the rise of "grass-eating men†there apparently

Looking past the obvious ‘gay’ innuendoes, it’s pretty obvious these guys are rejecting consumerism.

Grass eaters

Interesting link, cheers.

[The Spaniard]

Japan could do a national dividend funded by QE, and just increase the monthly amount until inflation eventually gets to the target. But authorities around the world seem rabidly against this idea. In fact they would rather see their economies crash to nothing than give even the smallest amounts to their people.

The commercially issued debt-based money system mitigates against a national dividend paid directly to citizens.

Any new debt-free electronic money introduced into people's bank accounts would be a new liability to the banking system with no balancing bank debt (asset to the banking system).

One way around this would be for an equal amount of new money to be deposited in the banks' accounts at the central bank, thus preserving each bank's balance sheet.

Another might be to issue the dividend in debt-free physical cash, though again the banks would oppose this.

Note: The UK QE programme simply replaces an existing bank asset (Gilts owned by the bank) with another (new money).

[waitingscot]

I'm slightly at a loss to see why this would actually prevent deflation its merely money in a different form.

What this would allow is the ability to print money without printing it (but we kind of do that anyway don't we?)

This is another example of the state using an emergency to increase its control on the population.

Thinking about it if all Japanese money was digital then it would be possible for them to introduce negative interest rates and there would be no way to avoid it.

Mmmmm

...except to abandon fake money and start using gold as currency. That would serve the state right for their trickery.

Edited June 19, 2009 by waitingscot

[HAMISH_MCTAVISH]

Paradox of Thrift....

Japan deeply screwed, unless it can get people to spend.

Negative interest rates, or a tax on savings, may be the only way.

[interestrateripoff]

Grass eaters

Media Shakers, a consulting company that is a subsidiary of Dentsu, the country's largest advertising agency, estimates that 60 percent of men in their early 20s and at least 42 percent of men aged 23 to 34 consider themselves grass-eating men.

.................

Grass-eating boys' commitment phobia is not the only thing that's worrying Japanese women. Unlike earlier generations of Japanese men, they prefer not to make the first move, they like to split the bill, and they're not particularly motivated by sex. "I spent the night at one guy's house, and nothing happened—we just went to sleep!" moaned one incredulous woman on a TV program devoted to herbivores. "It's like something's missing with them," said Yoko Yatsu, a 34-year-old housewife, in an interview. "If they were more normal, they'd be more interested in women. They'd at least want to talk to women."

So women complain about being treated like sex objects and men are only after one thing. Don't treat them like sex objects and don't try to get into their pants and they complain.

So a large number men seem to think they are grass eaters.

First time I've come across this term before.

[richcrashman]

Surely if a state makes its own currency so unnattractive to the population you would see trading in alternative currencies soft or hard???

[sundance_kid]

The term is meaningless.

It does make sense that where the very first places of imposition of Western values over Eastern ones first took place (Japan post war), it is now seeing the first erosion of those very values again. It’s simply a return their old values.

They clearly no longer want it and it’s quite remarkable the way in which they’ve turned the game. No need for protests, no need for marches, no need for war.

Those in charge appear to be way behind the base curve too, the best they can do is label these guys puffs for no longer striving for rampant consuermism to get on with life.

[Guest DissipatedYouthIsValuable]

So women complain about being treated like sex objects and men are only after one thing. Don't treat them like sex objects and don't try to get into their pants and they complain.

Comment

[Guest tbatst2000]

The thing about having a cash economy is that you can't bully the population effectively.

I'm still slightly surprised that Labour have yet to announce the abolition of cash in this country. It would be easy enough (in the Nu-Labour alternative universe where technology is foolproof and anyone that's employed by the state is, by definition, 100% trustworthy that is) to turn ID cards into electronic cash cards as well thus solving a load of National Socialist style made-up problems all in one go.

[interestrateripoff]

Comment

[Democorruptcy]

To fight deflation, abolish cash. Could Japan make reality of ‘science fiction’?Leo Lewis Asia Business Correspondent

With recovery elusive, a population doddering into old age and perhaps a decade of deflation in prospect, Japan may start mulling the most radical monetary policy of all — the abolition of cash.

Unorthodox, untried and, said one Bank of Tokyo Mitsubishi strategist, “in the realms of economic science fictionâ€, the recommendation has nevertheless begun floating around Tokyo’s corridors of power and economists have described Japan as particularly suitable as a testing ground.

The search for more outré economic policies continues, despite the recent surge in the Nikkei 225 index.The market may be reflecting soaring Chinese investment, rising consumer confidence and other cheerful data but economists see few long-term beacons of hope for Japan.

Other extreme ideas mooted by the financial authorities include a tax on physical currency or introducing one to operate alongside the yen.

All three ideas are based on a theory concerning interest rates and the concept that a nominal rate of zero — as Japan has now lived with for much of the past decade — may be too high. In Japan’s case, the theory would suggest that nominal rates of -4 per cent might be closer to what is required to rescue the economy from another deflationary spiral. Having agreed that this might be necessary, the next question is how it could be imposed.

Several MPs in the ruling Liberal Democratic Party believe the abolition of cash, though politically radioactive, might be technically feasible. Richard Jerram, a senior economist with Macquarie bank, told investors that “the proposal has become practical with the broad penetration of electronic money and credit cards in Japanâ€.

He said that all the proposals were radical but worth consideration for Japan. Without physical cash, a central bank can set rates exactly where it likes, runs the argument. Mr Jerram said: “At the heart of the problem of achieving negative nominal interest rates is the idea that physical currency is an anonymous bearer bond with a nominal interest rate of zero.†While a central bank can impose positive or negative rates on non-physical assets, transmitting those rates to physical currency is a huge challenge. By permanently removing cash from a system, he added, policymakers are robbed of the excuse that zero is the lowest that nominal rates can go as a deflation-fighting tool.

In theory, many Japanese could easily make the leap into a cashless world. The country has six main competing cashless payment systems, many of them embedded into mobile phones. Including Oyster-type cards issued by public transport companies, industry sources estimate that there are about 120 million cashless payment chips sitting in Japan’s wallets and handbags, waiting to be swiped.

Nevertheless, the country remains a wholeheartedly cash-based consumer society. Currency in circulation is about 16 per cent of its GDP, compared with the levels of 2 to 3 per cent in most developed countries. Reducing that 16 per cent to zero would be a wrench but would come with considerable benefits, Mr Jerram said.

But just as Japan’s cultural attachment to cash may prove hard to dislodge, some economists believe that the same may be true of deflation. The country’s growing population of elderly people mainly hold cash or cash equivalents and, compared with its US and European counterparts, the Bank of Japan has come under virtually no political pressure to be more belligerent in its war on deflation. It is unlikely, added Mr Jerram, to brook anything as radical as abolishing cash.

http://business.timesonline.co.uk/tol/busi...icle6531299.ece