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Tag Archives: zero lower bound

How the Bank of Canada’s balance sheet went from $118 billion to $440 billion in eight weeks

Ever since the coronavirus hit, the Bank of Canada's balance sheet has exploded. In late February its assets measured just $118 billion. Eight weeks later the Bank of Canada has $440 billion in assets. That's a $320 billion jump! To put this in context, I've charted out the Bank of Canada's assets going back to when it was founded in 1935. (Note: to make the distant past comparable to the present, the axis uses logarithmic scaling.) The rate of increase in Bank of Canada assets far exceeds...

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Death of a Northern Irish banknote

I was disappointed to see that First Trust Bank, a commercial bank based in Northern Ireland, will stop issuing its own brand of banknotes. Under different names, First Trust has been in the business of providing paper money for almost two hundred years, starting with the Provincial Bank of Ireland back in 1825.Source: First Trust 99.9% of the world's population uses government-issued banknotes. A small sliver of us—those who live in Northern Island, Scotland, Hong Kong, and Macau—get to use...

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Demonetization by serial number

This continues a series of posts (1, 2, 3) I've been writing that tries to improve on Indian PM Narendra Modi's clumsy demonetization, or what I prefer to call a policy of surprise note swaps.The main goal of Modi's demonetization (i.e. note swapping) is to attack holdings of so-called "black money," or unaccounted cash. The problem here is that to have a genuine long-run effect on the behavior of illicit cash users, a policy of demonetization needs to be more than a one-off game. It...

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Kocherlakota on cash

Narayana Kocherlakota, formerly the head of the Federal Reserve Bank of Minneapolis and now a prolific economics blogger, penned a recent article on the abolition of cash. Kocherlakota makes the point that if you don't like government meddling in the proper functioning of free markets, then you shouldn't be a big fan of central bank-issued banknotes. For markets to clear, it may be occasionally necessary for nominal interest rates to fall well below zero. Cash sets a lower limit to...

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The Broader View: The Positive Effects of Negative Nominal Interest Rates

By Jose Viñals, Simon Gray, and Kelly Eckhold Version in Deutsch (German) We support the introduction of negative policy rates by some central banks given the significant risks we see to the outlook for growth and inflation. Such bold policy action is unprecedented, and its effects over time will vary among countries. There have been negative real rates in a number of countries over time; it is negative nominal rates that are new. Our analysis takes a broad view of recent events to examine...

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Are the BoJ’s negative rates a con?

Some guesswork from Jefferies on Wednesday: The upcoming 27-28 April BoJ meeting is likely to push the authorities into finally admitting a plan to consolidate the JGB holdings into perpetual bonds alongside a formal move away from inflation targeting to nominal GDP targeting. There is a growing realization that there are effective limits to how much more JGBs can be acquired… Although there is certainly room for deposit rates to be dropped further into negative territory and possibly the...

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