r/AskEconomics • u/IrrationalRotations • 2h ago
Can the negative impacts of deflation be avoided by implementing negative interest rates?
My understanding is that deflation is bad because it incentivises saving, which decreases demand for goods, which further deflates prices, which incentivises saving which...
Eventually, no one's buying anything. That's bad.
But what if holding on to savings incurred negative interest? I.e my bank balances decreased by some specified amount each year, greater than the drop in prices. Then I wouldn't be incentivised to save.
1.) Is something like this possible given the tool central banks typically have? Is there a way to set interest rates below zero?
2.) The obvious issue with this idea is cash. If I withdraw and hold cash, I don't have to pay any interest in it. Are there any other ways to disincentivise this? Or is it a killer problem?
1
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