Just because some guy at Citi has jumped on the abolish the physical currency bandwagon, doesn't mean it's suddenly the most realistic monetary policy option out there, or, indeed, that spendid of an idea. Yglesias is all excited, of course. But let's get real here. Of the three potential shifts in either the policy or conduct of that policy by monetary authorities - each of which would be an improvement over the status quo, which ones have a chance? Think of:
- Change policy to NGDP level targeting (Sumner);
- No change in policy but engage in "helicopter drops" directly to households (Bernanke circa 1998 and Buiter circa 2012);
- Change policy to NGDP level targeting and implementing the policy via helicopter drops;
- Abolish physical currency and drive rates below zero.
I dunno. To me, it seems like the last one would be a stretch politically, on both elements of it. It just won't fly. Think of the tea party. Then think of the "keep your gubmit hands off my money" slogans. It's just too easy of a propaganda target and could really spark some violent protests. And to what end?
To the same end that could be accomplished with all other options, of which: The first is far easier - you just change the statement. The second and third are also plausible - helicopter drops would make Bernanke the most widely revered central banker in history bar none. In fact, helicopter drops should be so policitally attractive and addictive, I am frankly shocked it hasn't been done yet, given that 1) the guy who proposed it some 14 years ago is the head of the Fed and 2) it would actually help a great deal and hurt not at all!