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wedrifid comments on Q for GiveWell: What is GiveDirectly's mechanism of action? - Less Wrong
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Interest rates can be whatever real number they like (for the purpose of this question). The issue that Wedrifid_2013 considered necessary to at least acknowledge is that imposing a fee on holding money allows a governing body influence over behaviour up until the point at which it is more convenient to hold any other fungible entity than to hold the controlled currency. Beyond that the fees imposed are largely irrelevant. Of course, coercion could be used to prevent people using alternate forms of value, either in the form of prohibition or via tariffs. Either would call for the development of the next generation of digital currency to have more emphasis on anonymity. We could call it "Moonshine".
Subsidising holding money (or subsidising anything else that isn't a clear public good) does seem to be a bad idea most of the time. If the Market Monetarists mean to say that they oppose the Fed doing things that in effect amount to subsidizing holding money then I tend to agree.
Do you just mean that you can't encourage people to hold less than 0 money?
This is a good approximation of what Market Monetarists are saying with respect to interest on reserves. I want to point out that, Market Monetarists are also saying its bad to have the attractiveness of holding money fluctuate rapidly (such as if the return on other assets decreases rapidly, but the return on money stays the same) because it puts prices out of equilibrium and thus disrupts the functioning of the economy. If the return on other assets drops rapidly, you probably also want the return on holding money to decrease.
Technically. But the 'just' is a tad misleading. I mean that if money1, money2 and money3 behave in similar ways and can be freely exchanged between each other then adding fees to holding money1 will have a limited effect on how much (money1 + money2 + money3) is held. It's a lever without a natural fulcrum.
(Note that this is not intended as a criticism of Market Monetarism itself, just of the specific Wikipedia excerpt. Where your words spoken here in the name of Market Monetarism raise that theory's credibility, the wikipedia quote lowered it.)
Pardon me. English's reference system leaves a lot to be desired. What 'this' is this? The stuff about not subsidising?
Ah, I think I understand you now. Yes, if you have very close substitutes, making one less desirable will just push people into holding more of the others and not much less of the aggregate.
This is certainly a problem for physical cash vs. reserves with the fed, though less than it seems, I think because the return on cash has to take into account storage and security costs.
People also sometimes think that this applies to holding cash vs short term government debt, but government debt isn't a medium of exchange, which makes it not a very close substitute for money.
Sorry, I meant