International Economics and Economic Policy

, Volume 8, Issue 4, pp 383–405 | Cite as

Negative nominal interest rates: history and current proposals

  • Cordelius IlgmannEmail author
  • Martin Menner
Original Paper


Given the renewed interest in negative interest rates on base money—or equivalently ‘taxing money’—as a means for overcoming the zero bound on short-term nominal interest rates, this article reviews the history of negative nominal interest rates starting from the ‘taxing money’ proposal of Silvio Gesell up to current proposals that received popular attention in the wake of the financial crisis of 2007/2008. It is demonstrated that ‘taxing money’ proposals have a long intellectual history and that instead of being the conjecture of a monetary crank, they are a serious policy proposal. In a second step, the article points out that besides the more popular debate on a Gesell tax as a means to remove the zero bound on nominal interest rates, there is a class of neoclassical search models that advocates a negative tax on money as efficiency enhancing. This strand of the literature has so far been largely ignored by the policy debate on negative interest rates.


Negative interest rates History of economic thought Silvio Gesell Zero bound Search–theoretical models Monetary policy 


  1. Argitis G (2008) Inflation targeting and Keynes’s political economy. J Post Keynes Econ 31(2):249–270CrossRefGoogle Scholar
  2. Arouba B, Waller C, Wright R (2007) Money and capital. Federal Reserve Bank of Cleveland, Working Paper 714Google Scholar
  3. Bartsch G (1989) Silvio Gesell, die Physiokraten und die Anarchisten. In: Schmitt K (ed) Silvio Gesell—Marx der Anarchisten. Texte zur Befreiung der Marktwirtschaft vom Kapitalismus und der Kinder und Mütter vom patriarchalischen Bodenunrecht. Karin Kramer, Berlin, pp 11–32Google Scholar
  4. Bartsch G (1994) Die NWO-Bewegung Silvio Gesells. Geschichtlicher Grundriß 1891–1992/93. Gauke, LütjenburgGoogle Scholar
  5. Benhabib J, Schmitt-Grohé S, Uribe M (2001) The perils of Taylor rules. J Econ Theory 96(1–2):40–69CrossRefGoogle Scholar
  6. Benhabib J, Schmitt-Grohé S, Uribe M (2002) Avoiding liquidity traps. J Polit Econ 110(3):535–563CrossRefGoogle Scholar
  7. Bernanke B (2004) The great moderation, remarks by Governor Ben S. Bernanke at the meetings of the Eastern Economic Association, Washington, DC February 20. Available from: Accessed on: 19 June 2009
  8. Blanc J (1998) Free money for social progress: theory and practice of Gesell’s accelerated money. Am J Econ Sociol 57(4):S469–483Google Scholar
  9. Blanc J (2002) Silvio Gesell Socialiste Proudhonien et Reformateur Monétaire, Document de travail n° 253, Centre Auguste et Léon WalrasGoogle Scholar
  10. Bordo MD, Filardo A (2005) Deflation and monetary policy in a historical perspective: remembering the past or being condemned to repeat it? Econ Policy 44:799–844CrossRefGoogle Scholar
  11. Boyle D (2002) The money changers: currency reform from Aristotle to e-cash. Earthscan, LondonGoogle Scholar
  12. Buiter WH (2005a) Overcoming the zero bound: Gesell vs. Eisler. Int Econ Econ Pol 2:189–200CrossRefGoogle Scholar
  13. Buiter WH (2005b) New developments in monetary economics: two ghosts, two eccentricities, a fallacy, a mirage and a mythos. Econ J 115(502):1–31CrossRefGoogle Scholar
  14. Buiter WH (2007) Is numérairology the future of monetary economics? Open Econ Rev 18(4):127–156CrossRefGoogle Scholar
  15. Buiter WH (2009a) Quantitative easing and qualitative easing: a terminological and taxonomic proposal. Available from: Accessed on 21 Sept 2010
  16. Buiter WH (2009b) Negative nominal interest rates: three ways to overcome the zero lower bound. N Am J Econ Finance 20:213–238CrossRefGoogle Scholar
  17. Buiter WH, Panigirtzoglou N (1999) Liquidity traps: how to avoid them and how to escape them. NBER Working Paper 7245Google Scholar
  18. Buiter WH, Panigirtzoglou N (2003) Overcoming the zero bound on nominal interest rates with negative interest on currency: Gesell’s solution. Econ J 113(490):723–746CrossRefGoogle Scholar
  19. Calvo G (1983) Staggered prices in a utility-maximizing framework. J Monetary Econ 12(3):383–398Google Scholar
  20. Caudras-Morató X (1997) Can ice cream be money? Perishable medium of exchange. J Econ 2:103–125Google Scholar
  21. Cogan JF, Cwik T, Taylor JB, Wieland V (2010) New Keynesian versus old Keynesian government spending multipliers. J Econ Dyn Control 34(3):281–295CrossRefGoogle Scholar
  22. Cohrssen HRL (1991) Arbeiten mit Irving Fisher, Geld und Währung Working Paper. Available from:∼roehrigw/cohrssen/Arbeiten_mit_Irving_Fisher.pdf. Accessed on: 6 Jan 2011
  23. Corbae D, Temzelides T, Wright R (2002) Matching and money. Am Econ Rev 92(2):67–71CrossRefGoogle Scholar
  24. Cowen T, Kroszner R (1994) Money’s marketability premium and the microfoundations of Keynes’s theory of money and interest. Camb J Econ 18(4):S379–390Google Scholar
  25. Darity W (1995) Keynes’ political philosophy: the Gesell connection. East Econ J 21(1):27–41Google Scholar
  26. Davidson P (2000) There are major differences between Kalecki’s theory of employment and Keynes’s general theory of employment interest and money. J Post Keynes Econ 23(1):3–25Google Scholar
  27. Davies S (2004) Comment on Buiter and Panigirtzoglou. Mimeo, Research Institute for Economics and Business Administration, Kobe UniversityGoogle Scholar
  28. Diamond P (1984) Money in search equilibrium. Econometrica 52:1–20CrossRefGoogle Scholar
  29. Dillard DD (1942a) Silvio Gesell’s monetary theory of social reform. Am Econ Rev 32(2):348–352Google Scholar
  30. Dillard DD (1942b) Keynes and Proudhon. J Econ Hist 2(1):63–76Google Scholar
  31. Dillard DD (1946) The pragmatic basis of Keynes’s political economy. J Econ Hist 6(2):121–152Google Scholar
  32. Dillard DD (1948) The economics of John Maynard Keynes. The theory of a monetary economy. Crosby Lockwood, LondonGoogle Scholar
  33. Dillard DD, Roemheld L (ed) ([1940] 1997) Proudhon, Gesell and Keynes: an investigation of some ‘Anti-Marxian socialist’ antecedents of Keynes’ general theory of employment, interest and money. St. Georgen, Hackbarth (Dissertation, University of California, 1940)Google Scholar
  34. Einaudi L (1953) The theory of imaginary money from Charlemagne to the French Revolution. In: Lane FC, Riemersma JC (eds) Enterprise and secular change. New York, pp 229–261Google Scholar
  35. Eisler R (1932) Stable money: the remedy for the economic world crisis: a programme of financial reconstruction for the international conference 1933. The Search Publishing Co., LondonGoogle Scholar
  36. Ennis HM (2009) Avoiding the inflation tax. Int Econ Rev 50(2):607–625CrossRefGoogle Scholar
  37. Ewans GW, Guse E, Honkapohja S (2007) Liquidity traps, learning and stagnation. Eur Econ Rev 52:1438–1463CrossRefGoogle Scholar
  38. Fischer I (1933) Stamp scrip. Adelphi, New YorkGoogle Scholar
  39. Flik R (2004) Marktwirtschaft ohne Kapitalismus? Silvio Gesells schöne neue Freiland-Freigeld-Welt. In: Lux G, Müller RA (eds) Utopien und utopisches Denken—von der Bibel bis zur Globalisierun. Ausführungen zu unterschiedlichen Denkansätzen. Universitätsverlag Kastner, Wolnzach, pp 118–1299Google Scholar
  40. Fukao M (2005) The effects of ‘Gesell’ (currency) taxes in promoting Japan’s Economic Recovery, Institute of Economic Research of the Hitotsubashi University Discussion Paper Series 94Google Scholar
  41. Gaitskell H (1969) ‘Four monetary heretics: Douglas—social credit, Soddy—bank credit, Gesell—free money, Eisler—stable money’, with an introduction by M G Lloyd Pritchard. Lyn Christie & Son Ltd., ChristchurchGoogle Scholar
  42. Garvy G (1975) Keynes and the economic activists of pre-Hitler Germany. J Polit Econ 83(2):391–405CrossRefGoogle Scholar
  43. Gatch L (2006) Local Scrip in the USA during the 1930s: lessons for today, Paper Presented at the Conference on Monetary Regionalisation: Local Currencies as Catalysts for Endogenous Regional Development Bauhaus-University Weimar, Germany, September 28–29. Available from: Accessed on: 20 Oct 2010
  44. Gesell S (1891) Die Reformation im Münzwesen als Brücke zum Sozialen Staat, Buenos AiresGoogle Scholar
  45. Gesell S (1958) The natural economic order (Rev. ed) (Pye, P., Trans.), London, Peter Owen Ltd. (original German edition published in 1916)Google Scholar
  46. Goodfriend M (2000) Overcoming the zero bound on interest rate policy. J Money Credit Bank 32(4):1007–1035CrossRefGoogle Scholar
  47. Guha K (2009) Fed study puts ideal US interest rate at −5%, The Financial Times, April 27. Available from: Accessed on: 21 Jan 2010
  48. Hayek FA (1976) Denationalisation of money: an analysis of the theory and practice of concurrent currencies. Institute of Economic Affairs, Westminster, LondonGoogle Scholar
  49. Herland M (1977) ‘Perpetuum Mobile’ et Crédit Gratuit. Deux propositions oubliées pour améliorer le fonctionnement d’une économie monétaire. Revue Economique 28(6):938–973Google Scholar
  50. Huth T (2005) Silvio Gesell heute—Gedanken zur Wiederkehr seines Todestages. Fragen Freih 270:3Google Scholar
  51. Ilgmann C (2009) Silvio Gesell: ‘a strange, unduly neglected prophet’? A reappraisal of a forgotten pioneer of monetary theory, CAWM Discussion Paper No. 23, University of MuensterGoogle Scholar
  52. International Monetary Fund (2009) Global financial stability report: responding to the financial crisis and measuring systemic risks. Washington, D.C.Google Scholar
  53. Jung T, Teranishi Y, Watanabe T (2005) Optimal moenatary policy at the zero-interest-rate bound. J Money Credit Bank 37(5):813–835CrossRefGoogle Scholar
  54. Keynes JM (1935) A self-adjusting economic system? New Repub 82(1055):35–37Google Scholar
  55. Keynes JM (1936) The general theory of employment, interest and money. Mcmillan, LondonGoogle Scholar
  56. Keynes JM (1937a) The general theory of employment. Q J Econ 51(2):209–223CrossRefGoogle Scholar
  57. Keynes JM (1937b) The “ex-ante” theory of the rate of interest. Econ J 47(188):663–669CrossRefGoogle Scholar
  58. Keynes JM, Robertson DH (1938) Mr. Keynes and “finance”. Econ J 48(190):314–322CrossRefGoogle Scholar
  59. Kiyotaki N, Wright R (1989) On money as a medium of exchange. J Polit Econ 97(4):927–954CrossRefGoogle Scholar
  60. Kiyotaki N, Wright R (1993) A search–theoretic approach to monetary economics. Am Econ Rev 83(1):63–77Google Scholar
  61. Kocherlakota NR (1996) Money is memory. Federal Reserve Bank of Minneapolis. Research Dept, Federal Reserve BankGoogle Scholar
  62. Krugman P (1998) It’s baaack! Japan’s slump and the return of the liquidity trap. Brookings Pap Econ Act 2:137–205CrossRefGoogle Scholar
  63. Lagos R, Rocheteau G (2005) Inflation, output, and welfare. Int Econ Rev 46(2):495–522CrossRefGoogle Scholar
  64. Lagos R, Wright R (2005) A unified framework for monetary theory and policy evaluation. J Polit Econ 113:463–484CrossRefGoogle Scholar
  65. Li VE (1994) Inventory accumulation in a search-based monetary economy. J Monet Econ 34(3):511–536CrossRefGoogle Scholar
  66. Li VE (1995) The optimal taxation of fiat money in search equilibrium. Int Econ Rev 36(4):927–942CrossRefGoogle Scholar
  67. Liu LQ, Wang L, Wright R (2008) The “hot potato” effect of inflation. Macroecon Dyn (in press)Google Scholar
  68. Liu LQ, Wang L, Wright R (2009) On the “hot potato” effect of inflation: intensive versus extensive margins. University of Pennsylvania PIER Working Paper 09-40Google Scholar
  69. Lucas RE (1973) Some international evidence on output-inflation tradeoffs. Am Econ Rev 63:326–334Google Scholar
  70. Mankiw G (2009) It may be time for the fed to go negative. The New York Times, April 19. Available from: Accessed on: 6 July 2009
  71. Menner M (2006) A search–theoretic monetary business cycle model with capital formation. Contrib Macroecon 6(1), Article 11. Available from:
  72. Menner M (2011) “Gesell” tax and efficiency of monetary exchange. IVIE Working Paper (forthcoming)Google Scholar
  73. Molico M (2006) The distribution of money and prices in search equilibrium. Int Econ Rev 47(3):701–722CrossRefGoogle Scholar
  74. Molico M, Zhang Y (2006) Monetary policy and the distribution of money and capital. Comput Econ Financ 2006:1–31Google Scholar
  75. Nosal E (2008) Search, welfare and the “hot potato” effect of inflation. Federal Reserve Bank of Chicago—Financial Markets Group, Policy Discussion Paper PDP 2008–8, 1–16Google Scholar
  76. Onken W (1999) Silvio Gesell und die natürliche Wirtschaftsordnung. Eine Einführung in Leben und Werk. Gauke, LütjenburgGoogle Scholar
  77. Onken W (2000) The political economy of Silvio Gesell: a century of activism. Am J Econ Sociol 59(4):609–622CrossRefGoogle Scholar
  78. Pigou AC (1936) Mr. J.M. Keynes’ general theory of employment, interest and money. Economica 3(10):115–132CrossRefGoogle Scholar
  79. Preparata GG (2002) On the art of innuendo: J.M. Keynes’s Plagiarism of Silvio Gesell’s monetary economics. Res Polit Econ 20:217–253CrossRefGoogle Scholar
  80. Reeve JE (1943) Monetary reform movements. American Council on Public Affairs, Washington D. CGoogle Scholar
  81. Rocheteau G, Wright R (2005) Money in search equilibrium, in competitive equilibrium, and in competitive search equilibrium. Econometrica 73(1):175–202CrossRefGoogle Scholar
  82. Rupert P, Schindler M, Shevchenko A, Wright R (2000) The search–theoretic approach to monetary economics: a primer. Econ Rev Q4:10–28Google Scholar
  83. Schmitt K (1989) Geldanarchie und Anarchofeminismus. Zur Aktualität der Gesellschen Geld-, Zins-und Bodenlehre. In: Schmitt K (ed) Silvio Gesell—Marx der Anarchisten. Texte zur Befreiung der Marktwirtschaft vom Kapitalismus und der Kinder und Mütter vom patriarchalischen Bodenunrecht. Karin Kramer, Berlin, pp 33–258Google Scholar
  84. Shi S (1995) Money and prices: a model of search and bargaining. J Econ Theory 67(2):467–496Google Scholar
  85. Shi S (1997) A divisible search model of fiat money. Econometrica J Econometric Soc 65(1):75–102CrossRefGoogle Scholar
  86. Shi S (1998) Search for a monetary propagation mechanism. J Econ Theory 81(2):314–352CrossRefGoogle Scholar
  87. Shi S (1999) Search, inflation and capital accumulation. J Monet Econ 44(1):81–103CrossRefGoogle Scholar
  88. Shi S (2006) Viewpoint: a microfoundation of monetary economics. Can J Econ/Revue Canadienne d’Économique 39(3):643–688CrossRefGoogle Scholar
  89. Svensson LEO (2001) The zero bound in an open economy. A foolproof way of escaping from a liquidity trap. Monet Econ Stud 19:277–312Google Scholar
  90. Sveriges Riksbank (2009) Press release: Repo rate cut to 0.25 per cent, July 2. Available from: Accessed on: 4 Feb 2010
  91. Trejos A, Wright R (1995) Search, money, bargaining, and prices. J Polit Econ 103:118–141CrossRefGoogle Scholar
  92. Ullersma CA (2002) The zero lower bound on nominal interest rates and monetary policy effectiveness: a survey. Economist 150(3):273–297CrossRefGoogle Scholar
  93. van Suntum U, Kaptan M, Ilgmann C (2010) Reducing the lower bound on market interest rates, CAWM Discussion Paper No. 28Google Scholar
  94. von Mises L (1952) Planning for freedom: let the market system work. A collection of essays and addresses, edited with a Foreword by Bettina Bien Greaves (Indianapolis: Liberty Fund, 2008). Available from: Accessed on: 3 Dec 2010
  95. Wallace N (1998) A dictum for monetary theory. Q Rev-Fed Reserve Bank Minneapolis 22(1):20–26Google Scholar
  96. Warner J (2010) Stamp script in the great depression: lessons for community currency for today? Int J Commun Curr Res 14:29–45Google Scholar
  97. Werner H-J (1990) Geschichte der Freiwirtschaftsbewegung: 100 Jahre Kampf für eine Marktwirtschaft ohne Kapitalismus. Münster, WaxmannGoogle Scholar
  98. Woodford M (2003) Interest and prices: foundations of a theory of monetary policy. Princeton University Press, PrincetonGoogle Scholar
  99. Yates T (2004) Monetary policy and the zero bound to interest rates: a review. J Econ Surv 18(3):427–481CrossRefGoogle Scholar

Copyright information

© Springer-Verlag 2011

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of MuensterMünsterGermany
  2. 2.Department of EconomicsUniversidad de AlicanteAlicanteSpain

Personalised recommendations