Japan Could Avoid Deflation By Resorting To "Economic Science Fiction"

U.S. economists may dabble in science fiction, but only the Japanese are considering resorting to science-fictional ideas to rescue their economy. To avoid the spectre of deflation, the Japanese are considering abolishing cash altogether.

Writes the London Times:

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

Other crazy futuristic ideas include putting a tax on hard currency, and introducing a separate currency alongside the Yen. The Times explains:

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.

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.

I'm wondering if we could see a new kind of caste system emerging in the future, where only the lowest caste and underclass people carry actual hard cash instead of various monetary instruments.

Send an email to Charlie Jane Anders, the author of this post, at charliejane@io9.com.

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