Trump Federal Reserve Board of Governors nominee Marvin Goodfriend reportedly advocated on two different occasions the elimination of cash from circulation in an effort to prevent individuals from hoarding cash in the event that the Federal Reserve were to push a negative interest rate policy during a financial crisis.
The Mises Institute notes that Goodfriend first floated the idea in a 1999 paper called “The Case for Unencumbering Interest Rate Policy at the Zero Bound” and again promoted the concept at a 2016 Federal Reserve conference in Jackson Hole, Wyo.
Goodfriend reportedly said that the Fed needs the option to push interest rates negative, which would cause consumers to pay fees in order to keep their money in savings accounts, and that cash should be eliminated to prevent banking consumers from pulling their money out of banks to avoid paying those fees.
Bloomberg notes that Goodfriend suggested a few theories for how to phase out cash. He floated eliminating large bills to make cash less convenient. He suggested that the Fed charge banks and/or consumers fees for issuing paper currency. He advocated that the issuance of cash be taxed such that consumers only receive 90 cents when withdrawing a dollar. He also called for abolishing cash outright. The Wall Street Journal notes that Goodfriend additionally suggested that cash bills should contain a magnetic strip so they can be scanned and tracked as they move through circulation.
The Federalist’s Connor Boyack wrote, “From Sweden to India and Venezuela to Australia, governments around the world have already taken steps to eliminate cash from their economy. This is particularly attractive in countries like China, with a government that wants to be able to track its citizens at all times.”
Cash purchases are notoriously difficult for regulators to monitor.
In a January Senate confirmation hearing, Goodfriend downplayed his seriousness in advocating the policy.
“I wrote a paper in 1999 for a Federal Reserve System conference which asked what would happen if interest rates went to zero, and what could the Federal Reserve do. I didn’t propose that, that was an academic paper showing what could be done….It was not a proposal. It was an emergency matter we considered as a matter of thinking about these things before anyone ever imagined anything could happen like that,” he said, omitting any mention of his 2016 speech on the subject.
While Goodfriend’s nomination enjoys the support of most Senate Republicans, it has stalled so far in the face of opposition from Senate Democrats and Republican U.S. Senator from Kentucky Rand Paul.
Harvard economist Kenneth Rogoff, who supports Goodfriend, said, “Thank goodness there will be someone at the Fed with the foresight to realize that world needs to start thinking about how central banks can best deal with the inevitable next deep financial crisis. And negative interest rate policy is the best idea out there by a wide margin; hopefully we won’t need it anytime soon. Still, I believe that within a decade, all the world’s major central banks and treasuries are likely to have taken the simple steps necessary to create the foundations for effective negative interest rate policy in deep recessions or financial crises.”
The Mises Institute’s Tho Bishop, who questioned whether Goodfriend is the “worst Federal Reserve nominee of all time,” wrote, “Instead of correcting course from the interventionism of the Greenspan-Bernanke-Yellen, Goodfriend is doubling down on the same fundamental misunderstanding on the role of interest rates in an economy. Rather than a macroeconomic policy tool that can be used by central planners to speed up and slow down an economy, interest rates are instead important market prices coordinating the supply and demand of money on the market.”