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of zero – not only as a legitimate mean for central
banks, but actually as a welcomed new addition to
their monetary policy toolkit. What is more, this
change will, in his view, prove a landmark develop-
ment:
Negative interest rates as a tool for fighting reces-
sions and deflation would be undermined if people
started hoarding large amounts of cash in order to
avoid the charging of negative interest. Rogoff thus
advocates a gradual phase-out of cash, starting with
banknotes with large denominations. Apart from
rendering negative interest rates an effective mone-
tary policy tool, such a move would have further
positive side effects, as it would make tax evasion as
well as the funding of terrorists or organized crime
much more difficult.
Hard to believe, but on top of this already very broad
subject matter, Rogoff also managed to squeeze in
substantive assessments on several other top themes
such as austerity policies (worked in Britain), secular
stagnation (completely exaggerated), and innovation
(will continue or even speed up, don’t you worry).
And while these additional topics may seem rather
diverse, their analyses shared at least one common
insight: Larry Summers got it all wrong.
Dialogue and Events
Opinions
Public Lecture on "Dealing with Debt"
In connection with the conference on sov-
ereign debt (see page 9), the UBS Center
organized a public talk on the same topic
with Professor Ken Rogoff from Harvard Uni-
versity on June 23.
Thanks to his recent best-selling book
This Time is
Different: Eight Centuries of Financial Folly
, Rogoff
is widely regarded as one of the world’s leaders on
the topic. This may explain why the main auditori-
um of the University of Zurich was much too small
for the hundreds of people who wanted to hear
what the former IMF Chief Economist had to say
about the world’s current debt problems.
Prepare for continued weakness and debt write-downs
Rogoff started off with an overview of the breadth
and depth of the current debt problem, show-
ing that debt levels – private, sovereign, external,
and pension-related – remain near record levels.
Particularly Europe is still faced with a large debt
overhang, which, as historical evidence suggests,
generally lasts for more than two decades. We must
therefore expect years more of sluggish growth as
well as further write-downs of debt.
Unfortunately, it is the very same high debt levels
that prevent governments from counteracting the
negative consequences of this debt with fiscal policy.
Meanwhile, the historically low interest rate lev-
els impair the other main policy lever – monetary
policy – for fighting low growth. In such a context,
Rogoff considers negative interest rates – i.e. setting
the base rates below the traditional lower bound
"The elimination of the zero bound
is the next major turn in monetary
policy, akin to the ending of the
gold standard and fixed exchange
rates."
Ken Rogoff advocates for a gradual phase-out of cash
All eyes on Ken Rogoff in the main auditorium of Zurich University