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0/ The former Chief Economist of the Swiss National Bank Kurt Schiltknecht is openly criticising current monetary policy and the normalisation of negative interest rates in a major weekly newspaper. He sees cryptocurrencies as a possible solution for the economy.
Summary below 👇
1/ Central banks aren't backing down from negative interest rates. Instead of correctly analysing the situation, former employes and professors are experimenting around and even thinking about going even further down that path in case of an economic downturn.
2/ This would effectively lead to a tax on money. In case these ideas find their way in to the heads of CB executives, the market may have to find an alternative to the EUR and CHF. This may very well be a cryptocurrency.
3/ However, the creation of an alternative currency isn't easy in the current political enviroment due to legal tender laws and regulation.
4/ The idea of a free competition between currencies was best formulated by Friedrich von Hayek. Due to relatively decent monetary policy this idea however never really got much backwind.
5/ The idea was that competing currencies would force CBs to adopt a monetary policy that favored the entire economy. Now that they're doubling down on negative interest rates and continuously expanding the balance sheet, alternative currencies have to be considered.
6/ Further increasing negative interest rates would damage property rights of savers even more than they already have. Pension funds would be threatened and the European banking system would be even more weakened.
7/ Competition between currencies would bring CBs to think about what their job actually is. Is it really in the interest of the whole (swiss) economy to only care about exchange rates and keeping the ECB from going belly up?
8/ Blinded by the thought that the only way to avoid a crisis is to pump more money into the market and hold on to negative interest rates, CBs are not seeing the economical reality manifesting itself.
9/ There are better tools to deal with an economic downturn. However, it will be hard to get get the current ideas out of their heads as central bankers don't want to accept that their policies are creating doubt about the sustainability of the economic growth.
10/ Market participants have to assume that current policies will eventually end due to their negative impact. If the situation starts getting normalised however, the chances of severe market distortions increase drastically.
11/ This outlook makes investors take a more cautious approach. The only people who don't care about the situation are politicians as they have more money to throw around. Too many economists don't seem to realize that the economy doesn't operate the same way with negative rates
12/ Instead of realising that their policy doesn't have the desired effect, they just double down. An alternative approach to a near 0 interest rate enviroment could be to pay back already paid taxes to individuals and companies and to cut down on costly regulation.
13/ The problem of the current market enviroment isn't too little CB liquidity. It's a lack of will by politicians to address the general framework of the economy, problems in the banking system and the debt crisis.
14/ Instead of getting their hands dirty, they're fine with CBs flooding the market with money. Together with negative interest rates this signals an abandoning of normality. But they don't seem to care about that.
15/ Full article
Meant to say tailwind. Or that the idea didn't get much support. Forgive me for the haphazard translation as I put this together whilst working.
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