Overcoming the Zero Bound on Nominal Interest Rates: Gesell's Currency Carry Tax vs. Eisler's arallel Virtual Currency
Despite the zero lower bound on the short nominal interest rate in Japan having become a binding constraint, conventional monetary policy in Japan, in the form of generalised open market purchases of government securities of all maturities, has never been pushed to the limit where all outstanding government debt and all current and anticipated future government deficits are (or are confidently expected to be) monetised. Open market purchases of private securities can create serious governance problems. Two ways of overcoming the zero lower bound constraint have been proposed. The first is Gesell's carry tax on currency. The second is Eisler's proposal for the unbundling of the medium of exchange/means of payment function and the numeraire function of money through the creation of a parallel virtual currency. This raises the fundamental issue of who chooses or what determines the numeraire used in private wage and price contracts - an issue that is either not addressed in the literature or addressed incorrectly. On balance, Gesell's proposal appears to be the more robust of the two.
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- Buiter, Willem H., 2004.
"The Elusive Welfare Economics of Price Stability As A Monetary Policy Objective: Should New Keynesian Central Bankers Persue Price Stability,"
CEPR Discussion Papers
4730, C.E.P.R. Discussion Papers.
- Willem H. Buiter, 2004. "The Elusive Welfare Economics of Price Stability as a Monetary Policy Objective: Should New Keynesian Central Bankers Pursue Price Stability?," NBER Working Papers 10848, National Bureau of Economic Research, Inc.
- Mitsuhiro Fukao, 2005. "The effects of â€˜Gesellâ€™ (Currency) taxes in promoting Japan's economic recovery," International Economics and Economic Policy, Springer, vol. 2(2), pages 173-188, November.
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