When people hold money in banks, they expect to receive interest on their deposits. Yet this is changing around the world: as central banks have slowly dragged their policy interest rates lower, commercial banks have been forced to impose those lower rates. And increasingly, that has meant taking money from depositors.
Now, leading economists are saying that this should happen in the U.S., which is largely lagging the rest of the world in terms of monetary policy.
Bitcoin bulls are responding by saying that it’s extremely bullish for the cryptocurrency.
Call for Negative Rates Mount
Despite the roaring recovery in the S&P 500, crypto, and other markets, many facets of the global economy remain in recession. Dozens of millions are unemployed, consumer spending is down, and the global supply chain has come to a screeching halt.
To respond to this, central banks have continued to keep their feet on the monetary gas pedal, participating in liquidity injections to the tune of trillions of dollars in the past few months.
But according to Kenneth Rogoff, Professor of Economics at Harvard University, it isn’t enough, writing in a recent op-ed for Project Syndicate that there is a growing case for “deeply negative interest rates” in the U.S. and beyond.
He theorized that the current monetary regime could result in a failure of a “rapid recovery” in the global economy, which would “destroy wealth on a catastrophic scale” due to the trillions in debt companies and individuals have. Thus, Rogoff proposed that central banks should take short-term interest rates below zero, going as far as to say -3% “or lower.”
The reason: by taxing holders of cash, you incentivize spending and economic development. He explained:
If done correctly – and recent empirical evidence increasingly supports this – negative rates would operate similarly to normal monetary policy, boosting aggregate demand and raising employment.
Rogoff’s op-ed comes just two weeks after Narayana Kocherlakota, an economist who served as president of the Federal Reserve Bank of Minneapolis in the six years after 2008, said: “the Fed should go negative next week.” She outlined a similar case to the one Rogoff wrote about in a Bloomberg op-ed.
Bullish for Bitcoin
According to Dan Tapiero, the CEO of DTAP Capital and a gold bullion company, the wording from Rogoff, a “highly respected” person in macro circles, suggests that negative rates are being discussed right now at the Federal Reserve and Treasury.
This makes gold and Bitcoin attractive investments, he explained, noting how the institutionalized penalizing of holding cash at banks will lead to “hoarding of liquid stores of value,” which may yield no gains in terms of dividends but cost less to hold than cash.
Rogoff very highly respected in esteemed macro circles.
Very strong wording here suggests this IS being discussed now at Fed and Treasury.
Penalizing cash hoarding by institutions..
..leads to hoarding of liquid stores of value. Gold and btc benefit.https://t.co/a2IDH0IQZz
— Dan Tapiero (@DTAPCAP) May 5, 2020
Tapiero’s comment is the latest of many acknowledging that negative interest rates and the money printing we’re seeing should be a boon for Bitcoin in the long run. As reported by Blockonomi previously, Phil Bonello, head of Grayscale Investments’ research division, explained that this backdrop of aggressive monetary and fiscal stimulus is perfect for Bitcoin to shine:
Today’s macroeconomic environment continues to reinforce that a scarce, digital, non-sovereign form of money may be an attractive place to store value and may serve as a hedge against unrestrained money printing.
Now add the fact that in five days, Bitcoin will see its halving, and analysts say you have a recipe for success.