The IMF Working Papers series is designed to make IMF staff research available to a wide audience. With nearly 300 released each year, working papers cover a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Monetary policy space remains constrained by the lower bound in many countries, limiting
the policy options available to address future deflationary shocks. The existence of cash
prevents central banks from cutting interest rates much below zero. In this paper, we consider
the practical feasibility of recent proposals for decoupling cash from electronic money to
achieve a negative yield on cash which would remove the lower bound constraint on
monetary policy. We discuss how central banks could design and operate such a system, and
raise some unanswered questions.