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Comment by mitthrowaway2 | Hacker News Reader

Nonconvertibility is a forseeable next step. I imagine first there would be a fee for converting to cash (eg. if you "withdraw" 100 digital pounds, you get 90 paper ones). Then the decreasing popularity of paper pounds would be used as a basis for eliminating them entirely: going forward, paper pounds could be deposited for digital, but not withdrawn.

Next, the bank starts applying negative interest rates when they need to "stimulate" asset prices and keep the stock market from crashing. No longer worried that people will pull cash out of their account to stuff under a mattress, your bank account starts dropping by 5% or 10% per year...

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> No longer worried that people will pull cash out of their account to stuff under a mattress, your bank account starts dropping by 5% or 10% per year...

Why would they do this? There's already a much more streamlined legal mechanism for this: taxes. Plus, this isn't some new feature. If the government orders you assets frozen/seized, then a bank is going to comply with the order.

> I imagine first there would be a fee for converting to cash (eg. if you "withdraw" 100 digital pounds, you get 90 paper ones).

Again, not new. This is basically an ATM fee. Paper money has costs associated with it, whether that cost is paid explicitly (through fees) or behind the scenes (collecting fees from purchases, selling information about you to third parties, or "borrowing" your deposits to collect interest on it) is pretty much irrelevant.

Nothing you're saying is a "new" feature of digital currency.

Taxes are generally set in proportion to income, not savings. ATM fees are limited by competition to close to the bank's actual costs, rather than a deliberate policy to eliminate paper currency in circulation; if they charged upwards of 10% on withdrawals, people would very likely leave.

wealth taxes exist

For example?

More importantly, this wouldn't be a tax on wealth, it would be a tax on savings, meaning it would disproportionately affect the less-wealthy and the less-credit-worthy, who tend to not own significant assets or have the borrowing power to buy them. In terms of the discrepancy with a wealth tax, imagine trying to save money to buy a house, except that the house price grows each year, due to negative interest rates, while your savings account shrinks by the same proportion. Perhaps it doesn't take much imagination, because it's similar to 2020's zero-interest-rate environment, but without the restraint of being bounded by zero.

When people talk about central banks using negative interest rates to juice the economy, they mean the interest rate for borrowing, not for savings. They're related, but not tied to each other. The Fed lending money to my bank at a negative rate means my bank will be more likely to lend me money to open a business; it does not mean the bank would charge me interest on my savings (which would of course cause me to withdraw my money and close my account).

Are you imagining the government using digital currency to enact some kind of "shrinking money" policy that would have the effect of a negative savings rate? If so, why would they do that, and couldn't they do that regardless of whether the central bank lending rate is positive or negative?

> it does not mean the bank would charge me interest on my savings (which would of course cause me to withdraw my money and close my account).

Indeed. The reason why this matters, and becomes possible, with a CBDC is that there is nowhere left to "withdraw" to. Private banks would not offer you any higher rates on savings than the CBDC does (why would they, when they can borrow at the interbank rate for less?). The fact that account holders would withdraw if rates on savings became negative is why central banks presently are unable to reduce the interest rate (significantly) below zero. With a CBDC, "withdrawing" simply means transferring from your private bank account to your CBDC account.

It would not be the government enacting this policy, but the central bank itself, as a necessary step to conducting monetary policy below the zero bound.

> Private banks would not offer you any higher rates on savings than the CBDC does (why would they, when they can borrow at the interbank rate for less?)

The interbank rate has to be lower than 7% I'm sure, but that's what I have in a savings account.

Congratulations; you found a loss leader?

Yes, that's one of the many reasons why private banks would do it.

> with a CBDC is that there is nowhere left to "withdraw" to

Why can't I use them to purchase dollars or yen? How did we get from the BofE issuing a currency that people can use to everyone being forced to use it? (Also, may I humbly suggest the wikipedia article on Gresham's Law, if you're not familiar with it: https://en.wikipedia.org/wiki/Gresham%27s_law)

I agree that bad things would happen if everyone was forced to use a currency they don't want to use, but that's kind of axiomatic.

It's the obvious logical conclusion. Much of Europe is already actively trying to eliminate cash for quite a few years now. So the notion that a CBDC is acceptable specifically because cash will still exist, and that people won't be actively prevented from using cash in the future, is utterly absurd in light of the facts on the ground.

I didn't mention cash at all, perhaps you meant to reply to a different comment?

> this isn't some new feature. If the government orders you assets frozen/seized, then a bank is going to comply with the order

You aren't seriously trying to imply that it would be feasible for a government to decide to seize 5% of everyone's bank accounts at present? Being able to do something in a targeted manner and being able to do that same thing to the entire population at once with ease are not at all the same.

This is actually where a lot of people's perceptions about government tyranny seem to break down somewhat inexplicably. Guns? The police can show up right now and outnumber you so it makes no difference if they're outlawed. Restrictions on movement? The government can already blockade roads if they want to so it makes no difference if checkpoints are allowed to be constructed. Mass surveillance? The government can already wiretap you without your knowledge so it doesn't matter if that process is allowed to be automated.

All of those positions are very obviously false and yet a significant portion of the population seems to struggle with the common underlying concept. Enabling a behavior en masse with little to no friction is not at all the same as something targeted that requires noticeable resource expenditure to carry it out in each individual instance.

> Next, the bank starts applying negative interest rates when they need to "stimulate" asset prices and keep the stock market from crashing. No longer worried that people will pull cash out of their account to stuff under a mattress, your bank account starts dropping by 5% or 10% per year...

Can't they do this already by increasing money supply or QE? Central bank's can already create inflation which isn't dissimilar to negative interest rates.

QE is effectively an interest-rate cut but for long-term bonds rather than short term. It would typically be used in conjunction with control of the overnight rate, which still struggles with the zero-lower-bound unless the ability to hold cash is removed from the system.

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