http://www.wired.com/news/politics/0,1283,32121,00.html
PROPOSAL FOR EXPIRATION DATES ON U.S.
CURRENCY
October 28, 1999
Wired News reported: "US currency should include tracking devices
that let the
government tax private possession of dollar bills, a Federal Reserve
official says. The
longer you hold currency without depositing it in a bank account, the
less that cash will
be worth, according to a proposal from Marvin Goodfriend, a senior
vice president at the
Federal Reserve Bank of Richmond. In other words, greenbacks will get
automatic
expiration dates. 'The magnetic strip could visibly record when a
bill was last withdrawn
from the banking system. A carry tax could be deducted from each bill
upon deposit
according to how long the bill was in circulation,' Goodfriend wrote
in a recent
presentation to a Federal Reserve System conference in Woodstock,
Vermont. The
34-page paper argues a carry tax will discourage 'hoarding' currency,
deter black
market and criminal activities, and boost economic stability during
deflationary periods
when interest rates hover near zero. It says new technology finally
makes such a
scheme feasible. 'Systems would have to be put in place at banks and
automatic teller
machines to read bills, assess the carry tax, and stamp the bills
"current,"' the report
recommends. Goodfriend said in an interview that banks might place a
kind of visible
'date issued' stamp on each note they distributed. /The thing could
actually stamp the
date when the bill comes out of the ATM,' he said..."
Congressional critics say they would
oppose any such move.
"The whole idea is preposterous. The
notion that we're going to tax somebody
because they decide to be frugal and
hold a couple of dollars is economic
planning at its worst," said
Representative Ron Paul (R-Texas), a
free-market proponent who serves on the
House Banking committee.
"This idea that you can correct some of
the evil they've already created with
another tax is just ridiculous," Paul said.
Other economists say a carry tax is not a
wise plan.
"This is going beyond taxing banks for
holding reserves. It's taxing the public for
holding currency too long. That's even
more wild an idea," says George Selgin, a
University of Georgia economics professor
who specializes in monetary policy.
"There are sweeping implications of these
suggestions beyond whatever role they
might play in thwarting a deflationary
crisis... I think it's a very dangerous
solution to what may be a purely
hypothetical problem," Selgin said.
Goodfriend discusses an alternative: The
Fed should at times prevent Americans
from withdrawing cash from their bank
accounts. "Suspending the payment of
currency for deposits would avoid the
cost of imposing a carry tax on currency."
But he concludes that such a move would
have "destabilizing" effects, and
recommends that the Federal Reserve
instead "put in place systems to raise the
cost of storing money by imposing a carry
tax."
The idea has been discussed before.
Economist John Keynes mentioned the
possibility, but dismissed it because of
the administrative hassles involved.
Silvio Gesell, a Keynes contemporary and
like-minded thinker, also suggested taxing
money to allow lower interest rates.
But Goodfriend says that technology has
advanced since then. "In light of recent
advances in payments technology and
the less-than-satisfactory alternatives,
imposing a carry tax on money seems an
eminently practical and reasonable way
[to proceed]," he writes.
He said the Federal Reserve has
technology that would make it "feasible,"
but refused to give details.
One reason for a carry tax, he says, is
the reduced influence of the US central
bank when prices are not increasing and
inflation is close to zero. During such a
period, banks are less likely to make loans
-- even if the Fed tries to spur an
economic expansion through open market
operations.
But if the government taxes the currency
holdings of individuals and banks through
an occasional carry tax, they may be
inclined to lend money even at a negative
interest rate in order to avoid holding on
to it.
"This proposal is made well in advance of
any problem we have in the US. It's not
an emergency proposal at this point," he
said. The report says Congress would
have to pass legislation allowing such a
tax.
------------------
"Quis custodiet ipsos custodes" RKBA!
[This message has been edited by DC (edited October 28, 1999).]
PROPOSAL FOR EXPIRATION DATES ON U.S.
CURRENCY
October 28, 1999
Wired News reported: "US currency should include tracking devices
that let the
government tax private possession of dollar bills, a Federal Reserve
official says. The
longer you hold currency without depositing it in a bank account, the
less that cash will
be worth, according to a proposal from Marvin Goodfriend, a senior
vice president at the
Federal Reserve Bank of Richmond. In other words, greenbacks will get
automatic
expiration dates. 'The magnetic strip could visibly record when a
bill was last withdrawn
from the banking system. A carry tax could be deducted from each bill
upon deposit
according to how long the bill was in circulation,' Goodfriend wrote
in a recent
presentation to a Federal Reserve System conference in Woodstock,
Vermont. The
34-page paper argues a carry tax will discourage 'hoarding' currency,
deter black
market and criminal activities, and boost economic stability during
deflationary periods
when interest rates hover near zero. It says new technology finally
makes such a
scheme feasible. 'Systems would have to be put in place at banks and
automatic teller
machines to read bills, assess the carry tax, and stamp the bills
"current,"' the report
recommends. Goodfriend said in an interview that banks might place a
kind of visible
'date issued' stamp on each note they distributed. /The thing could
actually stamp the
date when the bill comes out of the ATM,' he said..."
Congressional critics say they would
oppose any such move.
"The whole idea is preposterous. The
notion that we're going to tax somebody
because they decide to be frugal and
hold a couple of dollars is economic
planning at its worst," said
Representative Ron Paul (R-Texas), a
free-market proponent who serves on the
House Banking committee.
"This idea that you can correct some of
the evil they've already created with
another tax is just ridiculous," Paul said.
Other economists say a carry tax is not a
wise plan.
"This is going beyond taxing banks for
holding reserves. It's taxing the public for
holding currency too long. That's even
more wild an idea," says George Selgin, a
University of Georgia economics professor
who specializes in monetary policy.
"There are sweeping implications of these
suggestions beyond whatever role they
might play in thwarting a deflationary
crisis... I think it's a very dangerous
solution to what may be a purely
hypothetical problem," Selgin said.
Goodfriend discusses an alternative: The
Fed should at times prevent Americans
from withdrawing cash from their bank
accounts. "Suspending the payment of
currency for deposits would avoid the
cost of imposing a carry tax on currency."
But he concludes that such a move would
have "destabilizing" effects, and
recommends that the Federal Reserve
instead "put in place systems to raise the
cost of storing money by imposing a carry
tax."
The idea has been discussed before.
Economist John Keynes mentioned the
possibility, but dismissed it because of
the administrative hassles involved.
Silvio Gesell, a Keynes contemporary and
like-minded thinker, also suggested taxing
money to allow lower interest rates.
But Goodfriend says that technology has
advanced since then. "In light of recent
advances in payments technology and
the less-than-satisfactory alternatives,
imposing a carry tax on money seems an
eminently practical and reasonable way
[to proceed]," he writes.
He said the Federal Reserve has
technology that would make it "feasible,"
but refused to give details.
One reason for a carry tax, he says, is
the reduced influence of the US central
bank when prices are not increasing and
inflation is close to zero. During such a
period, banks are less likely to make loans
-- even if the Fed tries to spur an
economic expansion through open market
operations.
But if the government taxes the currency
holdings of individuals and banks through
an occasional carry tax, they may be
inclined to lend money even at a negative
interest rate in order to avoid holding on
to it.
"This proposal is made well in advance of
any problem we have in the US. It's not
an emergency proposal at this point," he
said. The report says Congress would
have to pass legislation allowing such a
tax.
------------------
"Quis custodiet ipsos custodes" RKBA!
[This message has been edited by DC (edited October 28, 1999).]
, Art