If such steps were implemented and widely adopted, these proponents claim, there would no longer be a zero bound on interest rates, primarily because currency would not offer a zero interest rate alternative investment as a way to avoid negative rates on electronic bank balances. These ideas are clever, but complicated and permanent in their effects. Without going through the details of each proposal, let me discuss two of them: first, the proposal to eliminate currency, and second, the proposal to have currency taxed or to have interest collected from currency holders. By eliminating currency, the problem of avoiding the zero lower bound would be greatly diminished. In his paper, Ken Rogoff suggests that the use of currency, by allowing anonymity in trading, facilitates tax evasion and other criminal activity. He points out many benefits of currency, including seignorage, lack of reliance on electronic networks, transaction cost savings, and expanded civil liberties associated with additional  2  4  Willem H. Buiter and Nikolaos Panigirtzoglou, “Overcoming the Zero Bound on Nominal Interest Rates with Negative Interest on Currency: Gesell’s Solution,” Economic Journal 113, no. 490 (October 2003): 723–46; Kenneth Rogoff, “Costs and Benefits of Phasing Out Paper Currency,” paper presented at NBER Macroeconomics Annual Conference, April 11, 2014, Harvard University; Silvio Gesell, Die Natuerliche Wirtschaftsordnung (Rudolf Zitzman Verlag, 1916), available in English as The Natural Economic Order (London: Peter Owen Ltd., 1958); Marvin Goodfriend, “Overcoming the Zero Bound on Interest Rate Policy,” Journal of Money, Credit, and Banking 32, no.

It also uses as a working assumption that nominal wages will be adjusted in line with productivity and the inflation target. The baseline scenario also uses as a methodological assumption that the MPR will follow a path comparable to that that can be inferred from the prices of financial assets outstanding at the statistical closing of this Monetary Policy Report (figure 8). The baseline scenario reflects the events that are believed to be more likely to occur with the information at hand at the closing of this Report. However, there are risk scenarios which, if materialized, may reshape the macroeconomic outlook and thus the course of monetary policy. This time, having evaluated the alternative scenarios, the Board believes that the risk balance for both output and inflation, is unbiased. Internationally, the biggest risk continues to be linked to the Chinese economy and its financial system. This risk has significant impact, considering China’s weight in the commodities market, copper included, and its importance in world trade. Besides, one cannot rule out the vulnerabilities in other emerging economies resulting in new episodes of volatility. The risks relating with the United States withdrawing its monetary stimulus programs and the Eurozone’s macro-financial situation have diminished, but are still capable of widening the fluctuations in the global financial markets. In particular, the current context of lower sovereign premiums could trigger a sharper reversal. Still, the improved performance of the U.S. economy would also mean a stronger impulse from abroad. Locally, the main risk has to do with the short-term inflation outlook.