For example, if there was a -10% interest rate on cash, your $10 bill would actually be worth only $9. It is basically a penalty for using cash.
The excuse is that this will stabilize the economy by keeping more capital in the banks. It means banks, and by extension, the Federal Reserve, have more control over your money.
The Federal Reserve controls interest rates. Goodfriend claims that sticking to positive interest rates is an unnecessary limitation on their power to affect “interest rate policy to stabilize employment and inflation over the business cycle.”
So he wants to remove this encumbrance of positive interest rates in order “to free the price level from the destabilizing influence of a relative price over which monetary policy has little control.”
He is saying that the Federal Reserve has no control over the actual real-world economics of supply and demand. Prices naturally fluctuate with the market. They are indeed relative, based on how much is being produced and consumed. This doesn’t sit well with economic dictators.
Goodfriend says banks should be able to charge people money to store their money. But then why would anyone keep their money in a bank? They wouldn’t unless the cash negative interest rate was even higher.
He likens this to removing the gold standard. The gold standard, Goodfriend argues, was also an encumbrance on monetary policy, “destabilizing” prices.
Yes, the Federal Reserve could not screw people as easily when there was a gold standard. The value of money was actually based on something other than the whims of a few Federal Reserve governors.
Federal Reserve notes are only worth something because the government says they are. Wide acceptance of dollars as a store of value is the only thing that keeps the dollar afloat.