March 2021 issue contents
Monetary Policy with Negative Interest Rates: De-linking Cash from Digital Money

Katrin Assenmachera and Signe Krogstrupb


Monetary policy space remains constrained by the lower bound on nominal interest rates in many countries, limiting the policy options available to address future deflationary shocks. The existence of cash prevents central banks from cutting interest rates much below zero. In this paper, we consider the practical feasibility of recent proposals for de-linking cash from digital money to achieve a negative yield on cash which would remove the lower bound constraint on monetary policy. We discuss how central banks could design and operate such a system, and highlight some issues that require further research.

JEL Code: E42, E52, E58.

Full article (PDF, 40 pages, 1,088 kb)

a European Central Bank

b Danmarks Nationalbank