Zero Nominal Interest Rates
Description
Jordan MacLeod:
"In his seminal 1969 work, "The Optimum Quantity of Money," Friedman proposed what would become known as the "Friedman rule" – a policy setting nominal interest rates to zero. This proposal stemmed from his recognition that positive interest rates create an opportunity cost for holding money, leading economic actors to economize on cash balances below the socially optimal level. Since producing money costs essentially nothing at the margin, imposing an opportunity cost creates an unnecessary distortion. By setting nominal interest rates to zero, this inefficiency would be eliminated.
Friedman proposed achieving this zero nominal rate through steady deflation at a rate equal to the real interest rate. If the real interest rate was approximately 2%, creating a steady 2% deflation would yield zero nominal rates while maintaining the same real return. This would effectively compensate money holders through increased purchasing power rather than interest payments."
(https://www.realprotocol.org/full-paper.html)
The Zero-Rate Framework
Jordan MacLeod:
"The ZRF transforms monetary policy from a discretionary art to an automated science by embedding stability mechanisms directly into the financial infrastructure. This represents a fundamental evolution beyond Friedman's vision of rules constraining central banks to a system where the rules themselves create stability without requiring institutional enforcement."
(https://www.realprotocol.org/full-paper.html)
More information
* White Paper: The Zero-Rate Framework: Fulfilling Friedman's Monetary Vision. By Jordan MacLeod. Cornerstone Global Associates White Paper | April 4, 2025
URL = https://www.realprotocol.org/full-paper.html
"This paper examines how the Zero-Rate Framework (ZRF) represents the realization of Milton Friedman's vision for monetary policy. While Friedman advocated for a global monetary system "that eliminates the need for government intervention and provides stability," his proposed implementation mechanisms proved inadequate to fully achieve this goal.
The ZRF, through wealth taxation with financial claim exemptions, delivers Friedman's optimal monetary policy (zero nominal interest rates) without requiring deflation, while simultaneously resolving the tensions between domestic monetary sovereignty and international coordination that dominated his debate with Robert Mundell.
What makes the framework truly revolutionary is its dual transformation: it not only achieves superior economic outcomes (zero nominal rates, price stability, efficient resource allocation), but fundamentally changes how these outcomes are achieved—through automated mechanisms that eliminate discretionary intervention. This represents the ultimate fulfillment of Friedman's vision to "replace the Fed with a computer" while delivering his optimal monetary policy.
By creating rule-based monetary stability with minimal discretionary intervention, the framework transcends the false dichotomy between fixed and flexible exchange rates while addressing contemporary challenges of reserve currency dynamics, manufacturing concentration, and trade imbalances.
This paper argues that the ZRF does not reject Friedman's insights but evolves them to fulfill his deeper monetary ambitions through mechanisms better suited to contemporary economic realities."