Rajiv Sethi (I like this idea):
We have regulation about the government having monopoly over currency, but we allow these very close substitutes, we think it's good, but maybe... it's not so good, maybe we want to have a future where we all have an ATM at the Fed instead of intermediated through a bank... and if you want a better deal, you want more interest on your money, then you can buy what is basically a bond fund that may be very liquid, but you are not guaranteed that you're going to get paid back in full.
This is an idea that's long overdue. Allowing individuals to hold accounts at the Fed would result in a payments system that is insulated from banking crises. It would make deposit insurance completely unnecessary, thus removing a key subsidy that makes debt financing of asset positions so appealing to banks. There would be no need to impose higher capital requirements... And there would be no need to require banks to offer cash mutual funds, since the accounts at the Fed would serve precisely this purpose.
But the greatest benefit of such a policy would lie elsewhere, in providing the Fed with a vastly superior monetary transmission mechanism. In a brief comment on Macroeconomic Resilience a few months ago, I proposed that an account be created at the Fed for every individual with a social security number, including minors. Any profits accruing to the Fed as a result of its open market operations could then be used to credit these accounts instead of being transferred to the Treasury. But these credits should not be immediately available for withdrawal: they should be released if and when monetary easing is called for.
The main advantage of such an approach is that it directly eases debtor balance sheets when a recession hits. It can provide a buffer to those facing financial distress, allowing payments to be made on mortgages or auto loans in the face of an unexpected loss of income. And as children transition into adulthood, they will find themselves with accumulated deposits that could be used to finance educational expenditures or a down payment on a home.
In contrast, monetary policy as currently practiced targets creditor balance sheets. Asset prices rise as interest rates are driven down. The goal is to stimulate expenditure by lowering borrowing costs, but by definition this requires individuals to take on more debt. In an over-leveraged economy struggling through a balance sheet recession, such policies can only provide temporary relief. ...