When you lend somebody money, they usually have to pay you for the privilege.
That
has been a bedrock assumption across centuries of financial history.
But it is an assumption that is increasingly being tossed aside by some
of the world’s central banks and bond markets.
A
decade ago, negative interest rates were a theoretical curiosity that
economists would discuss almost as a parlor game. Two years ago, it
began showing up as an unconventional step that a few small countries
considered. Now, it is the stated policy of some of the most powerful
global central banks, including the European Central Bank and the Bank
of Japan.
On
Thursday, Sweden’s central bank lowered its bank lending rate to a
negative 0.5 percent from a negative 0.35 percent, and said it could cut
further still; European bank stocks were hammered partly because
investors feared what negative rates could do to bank profits. The Federal Reserve
chairwoman, Janet Yellen, acknowledged in congressional testimony
Wednesday and Thursday that the American central bank was taking a look
at the strategy, though she emphasized no such move was envisioned.
But
as negative rates — in which depositors pay to hold money in bank
accounts — become a more common fixture, there are many unknowns about
what these policies mean for finance, for the economy and even for the
definition of money.
These are some of the key questions, and, where we have them, the answers.
Link：http://www.nytimes.com/2016/02/13/upshot/negative-interest-rates-are-spreading-across-the-world-heres-what-you-need-to-know.html?ref=topics&_r=1
Japan also lowered their interest rates to become negative this week. I do not believe this strategy would be successful in America. I do not believe that our banking system will function well when people are charged to save money. I would be very angry if I showed up to a bank and had to pay to deposit money!
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ReplyDeleteCould this be an indicator of a recession that is more global than merely domestic? Obviously we haven't began using these in America however, with their installments in the European Central Bank and Bank of Japan, it seems that this could be reflective of the global economy. I feel that what it means for the definition of money is that the dollar is depreciating quickly and that their is a weak financial outlook.
ReplyDeleteThis is a very interesting read. Till a decade ago having negative interest rates were almost unheard of. This monetary policy adopted by Sweden means that the government want people to increase consumption more than any other component of GDP. As this should increase investment too as people will have to pay back less than what they would have borrowed. Theoretically there is a good chance of the policy increasing GDP of a country but only time will tell that how effective it is practically.
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