ABSTRACT Gesell's advocacy of possibly deeply negative interest rates on money to stimulate aggregate demand has become highly relevant between the Great Financial Crisis (GFC) of 2007–2010 and the inflationary recovery from the Covid Pandemic in 2021. Central bank policy rates were constrained by the effective lower bound (ELB) on nominal interest rates created by the existence of a monetary asset with a zero rate of interest—paper currency and coins—with low carry costs. Large‐scale expansions in the monetary base associated with Quantitative Easing (QE) to stimulate aggregate demand did little to boost the economy at the ELB, confirming another proposition of Gesell. QE to support or restore the effective functioning of systemically important financial markets can make sense. A recurrence of episodes where the ELB is preventing monetary policy from stimulating aggregate demand is certainly possible. Modern digital technology makes it possible to issue a new form of widely used money capable of carrying any size interest rate—negative or positive. Zero interest coin and paper currency would be abolished. A retail central bank digital currency, managed either in a centralized manner or on a permissioned or permissionless blockchain, that can be used for both online and offline transactions and without size caps on accounts and transactions, would eliminate the ELB and restore the ability of monetary policy to stimulate aggregate demand when this requires a possibly deeply negative interest rate on money. It is time to create this 21st‐century version of Gesell's Stamp Scrip.
Willem H. Buiter (Wed,) studied this question.