The Blockchain Alternative by Kariappa Bheemaiah

Author:Kariappa Bheemaiah
Language: eng
Format: epub
Publisher: Apress, Berkeley, CA

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*(It should be remembered in viewing this plan that money is not looked at as a debt instrument issued by the government (as is currently done in the fractional banking system). Rather it is to be seen as equity. The money being issued is an asset for the holder and not a liability to anybody, as it is not based on the creation and issuance of debt.)

Inflation can drop to zero and not cause monetary policy issues: Most of us are familiar with the practice of central bankers trying to stimulate the economy by keeping inflation at around 2% per year. The reason for engaging in this practice is multi-fold. Firstly, having a slightly positive inflation rate makes it easier to service debts. If prices were to fall, then the value of the debt would increase and reduce investor investment. Second, if prices were to fall, i.e., inflation is too low, then borrowing goes down and it becomes difficult for the central bank to stimulate the economy with low interest rates (see the note below on liquidity trap*). The only option in this situation would be that central banks would begin to apply negative interest rates. But if consumers can convert their bank funds into cash, such a measure would turn out to be ineffective. This is known as the zero lower bound for interest rates and can cause a liquidity trap. Hence a consensus merged that inflation needs to be low, but positive – at around 2% which would be accompanied with a nominal GDP growth rate of 4-5% (Turner, 2015).

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