Greg Mankiw raises an idea that Felix Salmon brought to my attention recently:
Imagine that the Fed were to announce that, a year from today, it would pick a digit from zero to 9 out of a hat. All currency with a serial number ending in that digit would no longer be legal tender. Suddenly, the expected return to holding currency would become negative 10 percent.
That move would free the Fed to cut interest rates below zero. People would be delighted to lend money at negative 3 percent, since losing 3 percent is better than losing 10.
Of course, some people might decide that at those rates, they would rather spend the money -- for example, by buying a new car. But because expanding aggregate demand is precisely the goal of the interest rate cut, such an incentive isn't a flaw -- it's a benefit.
Felix suggests such a solution might create an exodus from hundred dollar bills on the day before the number-picking ceremony, and suggests using Zimbabwe-style expiration dates on our currencies instead.
I made an argument along this tack at a speech tournament earlier this year. I posited that the world should use snakes as money.
(But wait, there's a rationale)
- Snakes need to be fed. Thus, they have a cost associated with holding them. Consumers are eager to avoid that cost and will likely spend their snake quickly. This will increase aggregate demand.
- Since the snakes will always need to be fed, there will always be an impetus to spend them quickly, as opposed to plans where an expiration date or "action date" is used, which will create periodic rather than longstanding stimulus.
- It would be very difficult and expensive to artificially raise a large enough quantity of snakes to substantively change the money supply.
- It would be difficult for a government to come after privately held snakes and seize them, as the US government did with gold in 1933. Logistically, a mass snake confiscation program would be hilarious.
- Snakes make more sense than precious metals as a store of value, since you can actually do something with a snake besides using it as a paperweight (eat it, worship it, be friends with it, use it to protect your home, use snake poo as fertilizer, etc.)
And below, the image that inspired it all. Those unsure why there is a dog surrounded by a rainbow might want to click here and then here. Beware however, the first click will inform, but the second may offend you if you don't like slightly off-color humor (R rated).
By the way: I didn't win, nor did I come close.
