Negative interest rates in Switzerland have started a bizarre debate among economists over whether cash should be abolished.
When the Swiss National Bank stunned markets in January by abandoning its currency cap it had imposed in its franc against the euro, it did so with eyes on the European Central Bank. The latter was easing policy to such a degree that defending the franc was getting too difficult.
Almost a year later - and capless - not much has changed.
After the decision to end the minimum exchange rate sent Switzerland's currency soaring, the SNB's policies of negative interest rates and foreign currency purchases have helped stabilize the franc at a tolerable level for exporters.
But the SNB still describes the currency as "significantly overvalued" and the problem may worsen.
The European Central Bank now looks like it will also go further negative in its attempts to cheapen the euro against the dollar, according to Reuters. The ECB currently has a -0.2% deposit rate for banks. Denmark and Sweden also have negative policy rates for their banks.
"The problem for the Swiss is that if the ECB cuts further, the Swiss franc will then look relatively expensive by comparison, again," Jim Edwards writes on Business Insider.
"So now Switzerland is locked into a race that no one wants to win: It must match each negative ECB move with an even more negative one of its own," he wrote.
"The intention behind negative interest rates is twofold: First, it makes your country's currency cheap by comparison. Who wants to hold a currency that only loses value? Cheap currency fuels exports and drives inflationary economic growth. Second, it punishes people who keep cash in the bank. Rather than let yourself be charged interest for storing it in an account, the thinking is you would rather take it out and spend it, thus generating economic activity," he wrote.
"But negative rates also create a surreal world in which you are charged for lending money and you make money by borrowing it," he warned.
Ken Rogoff of Harvard University has suggested banning cash altogether.
Rogoff calculates that there is $4,000 of currency in circulation for every person in America, The Economist reported. "Much of it is used to hide transactions from tax authorities or the police. Abolishing it would curb such activities, as well as helping central bankers."
More ECB easing would be the latest challenge in the SNB's four-year battle to shield the export-reliant economy from the strong franc, which has also been boosted by the euro zone debt crisis and the East-West standoff over Ukraine.
The most likely SNB response is to increase commitment to current policies, experts said.
It, for example, could ramp up foreign currency purchases, which Credit Suisse economists estimate are now around 400-500 million Swiss francs (£256 million - £325 million) per week.
It could push three-month interbank offered rates, where the target range is between -1.25 and -0.25 percent, further into negative territory to maintain a spread to euro interest rates, thus making the franc less attractive. And it could charge more than 0.75 percent on some sight deposits at the SNB.
"I think the SNB would act if the ECB cuts rates but the room for manuever is limited," Zuercher Kantonalbank's foreign exchange head Bernd Roth told Reuters.
Even-lower rates are an unattractive option as they hit savers as well as lenders with cash at the SNB and could push some banks to start charging retail investors to hold their cash.
Capital controls to limit bank withdrawals or transfers abroad are a theoretical option but economists said they were unlikely given the hit they would have on Switzerland's role as a financial hub.
Some relief, however, could come from the U.S. Federal Reserve, which meets on Dec. 15-16 and is expected to raise rates for the first time in almost a decade. This could strengthen the dollar and ease some pressure on Swiss exports.
(Reuters and Newsmax wire services contributed to this report).
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