Could a cashless economy help central banks to use | tutor2u Economics
Topic updates

Could a cashless economy help central banks to use negative interest rates?

This IMF blog (published February 2019) argues that a dual currency system involving e-money and cash might give central banks for more freedom to cut interest rates below zero as a policy response to a future shock.

Few central banks at present have moved nominal interest rates back towards previously normal levels (for the UK that might be between 3-5% when policy interest rates remain at 0.75%) to allow themselves some wriggle room when there is an economic downturn.

In countries where cash in circulation is a significantly smaller percent of GDP (such as Sweden and Norway) it would - in theory - be relatively straightforward to impose negative interest rates on e-cash held in deposit accounts.

However "cash is a free option on zero interest, and acts as an interest rate floor." The accompanying chart shows the large differences in the use of cash across developed OECD countries - in Sweden, currency in circulation is around 1 percent of GDP, whereas in Japan is it closer to 20 percent.

Subscribe to email updates from the tutor2u Economics

Join 1000s of fellow Economics teachers and students all getting the tutor2u Economics team's latest resources and support delivered fresh in their inbox every morning.

You can also follow @tutor2uEconomics on Twitter, subscribe to our YouTube channel, or join our popular Facebook Groups.

Job board

Economics Teacher

Bromley High School, Bromley, Kent

Teaching Vacancies


Advertise your vacancies with tutor2u

Much cheaper & more effective than TES or the Guardian. Reach the audience you really want to apply for your teaching vacancy by posting directly to our website and related social media audiences.

Find our more ›

Advertise your teaching jobs with tutor2u

A New Home for tutor2u Resources

We've just flicked the switch on moving all our digital resources to instant digital download - via our new subject stores.

For every subject you can now access each digital resource as soon as it is ordered. This will always be the latest edition of each resource too (and we'll update you automatically if there is an upgraded version to use).

Simply add the required resources to your cart, checkout using the usual options and your resources will be available to access immediately via your mytutor2u account.