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Japan not banning cash any time soon

June 25, 2009
By Ken Worsley


The foreign media recently seems to have pounced on a story concerning plans to ban the use of cash and push nominal interest rates down to -0.4% in an attempt to fight deflation in Japan.

It won’t happen.

While electronic cash payments will continue to grow as a proportion of transaction settlement methods, the idea of banning cash altogether is impractical. At the same time, the idea of creating negative nominal interest rates is political suicide. In such a situation, the yen itself would be essetially worthless.

To be honest, I had a lot more ideas on this topic, but the proposal seems so absurd that it’s better treated as a media oddity.

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Comments

3 Responses to “Japan not banning cash any time soon”

  1. Michael Cucek on June 25th, 2009 5:44 pm

    Mr. Worsley -

    Forcing money out of savings accounts through negative rates of interest would ostensibly be an attempt to induce people to try park some part of their current holdings in goods, increasing demand and putting the brakes on falling prices. That the inducement might be trumped by capital flight and a collapse in the value of the yen is another matter, of course.

  2. Ken Worsley on June 25th, 2009 5:56 pm

    I agree. Capital flight is one of the first things I thought of.

    Goods, of course, are poor investments with terrible yields - hardly a place anyone should want to park cash. The potential negatitve consequences of this plan seem overwhelming,

  3. Jason on June 29th, 2009 1:33 am

    I suppose I don’t understand why there is a need for government to do anything about deflation whenever it occurs. I understand that deflation is bad at the micro level for businesses who are overly stocked with supply. Their overestimation as to the need for such large supply is the reason deflation occurs. Deflation will disappear when supplies reach more reasonable levels.

    There is no need for government to do anything regarding deflation. Please do correct me if I am mistaken.

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