A completely digital monetary system could solve the 0% limit problem for the monetary policy. Until when physical money is circulating, the imposition of negative rates on retail customers could push daily behavior to the old pre-plastic money times. The cost of managing the digital money falls instantly to near zero, the possibility to open retail bank accounts with the central bank is not a dream any more. The safety offered by the Central Bank against defaults would be enough to push many customers to it, at least in Europe (unless some new unconventional, but “orthodox”, tool is locally invented).
Using only digital money is very comfortable, but it touches privacy and digital divide issues.
Our trust towards money is a result of long times, nonlinear evolution and some accidents. We were first hiding, then physically depositing in a safe place our precious savings. The cultural evolution that allowed the passage from a physical deposit in a safe and guarded place (the first banks) to the acceptance of a document representing wealth is simple to describe, much longer to mature. This is the first stage of virtualization we have historically been able to accept. Without this virtualization, the idea to trust my savings to a portfolio manager would have never happened (and with it, the related industry would have never started). Only after humans accepted to part from their physical belongings (retaining ownership), portfolio management, pension funds and insurances could develop in a modern way.
Today’s Sweden seems to be the society where virtualization of money is at its most advanced stage: in 1950 money in circulation was equivalent to about 10% of the country’s GDP, today the same ratio is down to about 1.5%. Sweden, in keeping some money still physically circulating, is confirming our theoretical statement at the beginning: the existence of paper and metal money allows the citizen to trust the whole system (they know they can still avoid the risk of negative rates by asking for their money back). The end consumer acts very safe, is not yet ready to jump fully into the monetary virtual reality.
The common people behavior is mirrored also by the banking sector prudence. Banks are guessing the potential reactions to negative rates on the part of their customers, they prefer to avoid risky experiments in real life, they accept to lower their profitability more than taking unknown and potentially huge risks. The understanding that you need long time to build trust and you kill it with very little seems to be extremely clear to our banks.
Looking at trust from one more angle, we can see that the action taken by policymakers in these exceptional times, named with the “quantitative easing” euphemism, seems to fully correspond to the idea of debasement of the currency. The old term does not evocate very respectful meanings, maybe the negative shade affecting its meaning will transfer to the modern “quantitative easing” too.
The reality is that, whatever name you use for it, if the use of “quantitative easing” is exaggerated, the effect will be the same as when the local renaissance banker was shaving some gold off the coins he traded, this time the trust towards the money, not the single bank will be affected.