Negative rates have stunned the financial world. What will be the impact of negative interest rates?

Let us recall that since October 27, 2014, this interest rate has been at a historically low level in Sweden: 0%. Now she is in the red.

At the same time, Riksbanken is buying government bonds worth 10 billion crowns, and is ready to buy more, the central bank said in a press release.

Riksbank analysts suggest that low inflation, which was at minus 0.3% in December at the rate of development for the year, may have already reached the “bottom”, so to speak, and will now begin to rise. In any case, the goal of 2% inflation per year is still far away.

Analyzing the situation in the surrounding world, the Riksbank concludes that the world economy is “bouncing back” after the financial crisis, but slowly. Since December last year, however, the risk of deterioration in economic development has increased. In particular, the fall in oil prices, which can have a positive impact on production growth, on the other hand, leads to low inflation on a global scale. The situation in Greece also does not add confidence in the development trends of the global economy.

As for Sweden specifically, the Riksbank believes that production growth is supported by both low oil prices, a weak Swedish krona exchange rate, and a low bank interest rate. According to the bank, Sweden's GNP will grow faster and the labor market will strengthen.

What will this “minus rent” entail for Swedish residents: What will happen to bank loans? What will happen to the money that people put aside “in reserve” in their bank deposit accounts? What will happen to our mortgage loans?

A negative refinancing rate means that banks have to pay to deposit money into their Riksbank accounts. And they are obliged to do this if, as a result of all banking transactions of the current day, they have money left in their cash desk (overnight/overnight deposits).
But will this mean that banks will want to cover these costs at the expense of their clients? And they will start charging us for the fact that we want to put our saved money into a savings bank account?

In principle, interest rates on our accounts or mortgages should not be affected by these negative rents. Because the level of interest on deposit accounts and on loans is determined by each bank individually, and not by the Riksbank.
But for the banking system as a whole, the level of this short-term refinancing rate is of great importance.

This rate determines the interest that banks pay when they borrow money from each other. It could also lead to businesses being able to take out loans at lower interest rates. And this, in turn, can lead to an increase in investment, that is, precisely the stimulation of the Swedish economy that the Riksbank is striving for by lowering the interest rate. And an increase in production usually “triggers” the mechanism of inflation growth. This is what the Riksbank is trying to achieve.

Experience of other countries with negative interest rates shows that if this minus is small, then this does not affect small clients who habitually save money in bank accounts. In Denmark, FIH announced in March last year (following the central bank's rate cut) that for every 1,000 kroner a customer holds in the bank, he will have to pay 5 Danish kroner. According to the Wall Street Journal, clients have already begun to leave the Danish bank. What will happen if other banks follow FIH, asks the rhetorical question of the newspaper Svenska Dagbladet today in its economic supplement.

Anticipating today's move by the Central Bank, two directors of large Swedish private banks have already spoken out on this topic and assured their clients that they - that is, all of us - will not have to pay to keep their money in the bank.
The two directors are Annika Falkengren from Svensk Enshilda Banken/SEB and Michael Wolf from Swedbank.

Mikael Wolf from Swedbank assured (in an interview with the Ekot newsroom) Swedish Radio that banks will do everything to protect their small depositors. Because otherwise, they - these depositors - will simply take their money from the bank and hide it, as they say, “under the mattress.” However, neither he nor his colleague Annika Falkengren can give any guarantees. No one can guarantee that the “negative rent” for banks will not turn into an equally negative rent for small depositors.

An expert on private economic affairs (microeconomics), Annika Creutzer, believes, for example, that “negative rent” will affect not only how and where people will store their savings, but also the level of wages. Here's how she explains the impact of this interest rate cut:

This means that when banks borrow money from the Riksbank, the Riksbank charges a fee for it. 0.1 percent. This means that banks will want to give us, clients, even more loans and credits, and these loans will cost us less. But there will be no interest on savings at all; this is a new situation for us. It is possible that we will also have to pay to open a savings account in a bank, says Annika Kreuzer, expert and journalist.

She describes inflation as the “lubricant” of the economy and explains its necessity in terms of paying for goods and services. The Riksbank's goal is to keep inflation low and stable. But now, due to growing concerns and turbulence in the global economy since December last year, the Riksbank is cutting interest rates and buying government bonds worth 10 billion crowns. The situation, however, is not unique to Sweden, says Annika Kreuzer:

This is an international problem. Sweden is a small country with an open economy, large exports and imports. We are influenced by what happens in the world. What is happening now in Sweden has already happened in Denmark and Switzerland.
Falling oil prices, problems in the eurozone, “limping” production growth in the US and the economic crisis in Greece - all this affects the Swedish economy. And it could be years before the situation changes, she said.

How will today's interest rate cut affect ordinary people? She answers this question:

I don't think there will be any changes in mortgage loans. But saving in a bank loses all meaning, because there is no interest on it. But it’s better to keep money in the bank, even if it doesn’t grow there, than at home under the mattress. Just for security reasons,” says Annika, meaning that you shouldn’t put yourself at risk of robbery or home theft if you hide money at home.

Annika Creutzer suggests that banks may increase fees for savings and savings accounts. There is little hope that interest rates on deposits will increase. But what is important, she emphasizes, is to check: does the bank have government guarantees for deposits? So that this money does not “melt” in the account over time.

As for the impact of a negative interest rate on wages, it assumes the following scenario:

It is likely that employers will say: since we are not paid more for our goods (i.e. there is no inflation), then we cannot raise wages. It is possible that for some categories of workers this will mean a reduction in wages, said Annika Kreitzer in an interview with our colleague Isabelle Swahn

How many years ago most of If the world's population has heard about negative interest rates, it was only from lecture courses on the world economy. However, in Lately In European countries and the United States, the economic situation is such that the government will have to resort to setting such rates in order to increase demand and purchasing activity of the population.

Reasons for negative interest rates

The reasons for this can be considered using the example of the United States. Due to the growing national debt of this country, the population has stopped spending money, but prefers to place it in deposits for the purpose of accumulation. Many people simply risk being left without work, and the level of unemployment in the United States has long since reached such a level high level, which scares not only experts in the field of economics, but also citizens who are far from this industry. In this regard, the government wants to reduce deposit rates to negative indicators in order to force people to withdraw money and spend it.

Alternative to setting negative rates

Some experts to avoid introduction negative rates, propose to artificially organize inflation in the country, raising it to the level of 6%. Due to such a reform, the actual interest rates on deposits (from 0% to 2.5%) will automatically turn into negative interest rates and it will simply become completely unprofitable to store money. However, many experts fear uncontrolled price increases and consider such measures unacceptable.

Another alternative can be considered the introduction of a new currency in the United States. The dollar will remain a payment document, and the new currency will perform the functions of exchange and payment. It is proposed to set the exchange rate of the new currency in such a way that the dollar loses its liquidity, and then such measures will in fact lead again to negative rates.

Some experts propose introducing a tax on money: those citizens who have savings will be required to pay a tax for placing these Money in deposits. According to experts, all these actions will force the population to withdraw money from banks, stimulate the credit system, and have a beneficial effect on the stock market.

Government crackdowns on negative lending rates are used in countries where the economy is under serious threat, the banking system is helpless, and national and foreign debt is growing. In Russia there is no tendency towards such reforms, however, if you calculate the real interest rate on deposits (the difference between the deposit rate and the inflation rate in the country) in Russia, you can see its low value - about 2%. In some banks real rates deposits are already negative, however credit organizations They compensate for this fact with their reliability.

In some Swiss banks, interest rates on retail deposits have already dropped below zero. Are negative interest rates on deposits possible in Russia?

Of course, negative rates are a nightmare for savers, but they would be very welcome for borrowers. Imagine: you take a ruble and return fifty dollars. Dream!

Of course, savvy investors can combat negative rates by moving into cash. However, for a VIP, going to the cache is not an option. After all, the costs of storing and transporting cash can “eat up” up to 1% per year.

Essentially, negative deposit rates are the equivalent of a tax on money. Previously, negative rates were considered a theoretical delight. Although initially “proto-banks” (for example, goldsmiths) charged a fee for storing money - for placing deposits.

The idea of ​​demurrage, negative interest rates, by German businessman and social reformer Silvio Gesell (1862-1930) for a long time was not considered seriously. It was believed that the natural limit on interest rates was zero.

However, already in April 2009, Gregory Mankiw predicted a negative Fed key rate in the New York Times. If lowering interest rates stimulates the economy, and the key rate is already close to zero, why not reduce the rate to negative values? The idea of ​​negative rates seems absurd: lend a dollar, get 99 cents. But the idea negative numbers, Mankiw recalls, initially seemed absurd.

Mankiw’s prediction quickly came true, although not with regard to the Fed: in July 2009, the Riksbank, Sweden’s central bank, introduced negative rates.

Then negative key rates were established in a number of other countries, including Switzerland, Japan, Denmark, as well as in the eurozone countries (deposit rate - -0.4% per annum). Moreover, negative interest rates have also been established in the interbank lending markets of some countries. Bond yields have also turned negative in some countries.

The Japanese and Germans responded to ultra-low interest rates by increasing demand for safes. Negative rates pose a threat of a run on banks and can lead to a liquidity crisis.

Probably the first bank to upset its customers with negative interest rates on deposits was Alternative Bank Schweiz, which since 2016 introduced a rate of -0.75% on deposits worth more than 100 thousand Swiss francs. Another well-known Swiss bank, Lombard Odier, upsets its wealthy clients in the same way. So the first victims of negative deposit rates are wealthy clients - it is difficult for them to “escape to cash”.

Are negative rates possible in Russia? Not excluded. The condition for their appearance may be deflation. Deflation itself is pleasant and useful for consumers - what's wrong with falling prices? However, it is not deflation that is bad, but its main reason - a reduction in demand - for example, due to a crisis. People don't have money to buy goods, so prices are falling. Of course, if the reason for the decline in prices is a reduction in production costs, for example, as a result of technological progress, then one can only rejoice at such deflation.

For now, the threat of negative interest rates in Russia appears to be low. However, a recession may lead to the realization of this threat. It is possible to soften monetary policy even to negative interest rates.

Miles Kimball, an economics professor at the University of Michigan, spoke to CoinTelegraph about negative interest rates, the future of paper and electronic money, and the expected place of cryptocurrencies in the economy.

Interest in negative interest rates has grown significantly recently. They operate or have operated in Denmark, Switzerland, Germany, the Netherlands, Austria and Sweden. Some corporate bonds, such as Nestle and Shell, were also offered at negative interest rates.

What is a negative interest rate

A negative interest rate occurs if, having given your money to a bank or government, you receive back a smaller amount after some time. Essentially, you are paying the bank or government to temporarily manage your money. This strange situation occurs when many people who are very risk-averse seek a “safe haven” for their finances, and is usually the result of a large-scale recession in regions where there is virtually no economic growth (for example, the European Union).

CoinTelegraph: Why is it easier to introduce a negative interest rate with electronic money than with paper money? Can you explain how it would work with Bitcoin and e-dollars?

Miles Kimball: For money kept in a bank, introducing a negative interest rate is easy: just gradually reduce the account balance, even if no funds are withdrawn from it. On the other hand, paper money has specific numbers printed on it, so it is more difficult to impose a negative interest rate on paper currency. Among other things, this requires the use of an electronic dollar as a measure of value.

If the measure of value is the paper dollar, then the interest rate on paper currency is always zero (unless you tax paper money, which is much more difficult from an administrative and political point of view compared to electronic money). monetary system). Thus, in order to be able to introduce a negative interest rate for monetary currency and other assets, the measure of value must be the electronic dollar. In this case, the central bank could impose a non-zero interest rate on fiat currency right at the treasury level where banks deposit or receive fiat currency into their accounts.

To conduct effective monetary policy, it is important that the central bank has control over the measure of value, and the electronic dollar as such may have many aspects of a cryptocurrency - perhaps enough to be considered a cryptocurrency.

As for private cryptocurrencies (like Bitcoin), they may well be a medium of exchange and a store of value, but monetary policy requires control over the measure of value. Central banks need to maintain control over the type of money that determines the measure of value - in this case, the electronic dollar. There are three key factors to ensure that the electronic dollar (or electronic euro, electronic yen, etc.) is used as a measure of value:

• requirement to calculate taxes in electronic dollars;
• accounting standards requiring accounting in electronic dollars;
• the need for coordination between companies, as well as between companies and households (similar to the coordinated transition to summer time, but without checking the clock on anyone's part).

C.T.: How can one introduce a negative interest rate in a cryptocurrency system?

MK: To be able to introduce a negative interest rate in a cryptocurrency system that uses Bitcoin or its equivalent for most transactions, the functions of a measure of value and a medium of exchange must be separated. This can be done with a non-Bitcoin e-dollar (it's also a good idea to have many different stores of value, but they're always available).

Currently, robots cannot conduct monetary policy as well as banks. Perhaps someday they will be able to do this, and then the responsibility for the electronic dollar can be placed on the computer. However, there will still be a need for a separation between the electronic dollar measure of value (controlled by a computer) and any asset that automatically receives a zero interest rate in its own terms (as Bitcoin currently does).

C.T.: Can Bitcoin be a currency? What do you think are its limitations?

MK: Bitcoin is already a currency, but it would be unwise to try to use it as a “full-fledged” currency. A good measure of value should have a constant value relative to goods and services, but Bitcoin is not like that. It cannot have a constant relative value without much more complex algorithm emission controls that far exceed the current capabilities of central banks. Designing and implementing good monetary policy is not easy.

The measure of value should be controlled by the institution best able to ensure its constancy across goods and services and, in the process, maintain the natural level of production in the economy. Currently these are central banks. Bitcoin's value fluctuates significantly relative to goods and services, and central banks (people using computers) can so far manage monetary policy much better than the Bitcoin algorithm.

C.T.: Tell us about blockchain technologies in the context of central banks. What operations/tools is blockchain best suited for?

MK: I do not consider myself an expert on blockchain technologies, but it seems to me that they or developments based on them will be important to ensure the normal operation of electronic dollars. Electronic dollars include money in the bank, but they are very inefficient, their transaction fees are high, and banks will have to go the way of Bitcoin. Blockchain is a huge achievement that can significantly reduce the cost of processing transactions compared to modern banking methods. It will make electronic transactions much more efficient.

C.T.: What do you think about "currency wars» and their influence on central bank policies? Do negative interest rates have anything to do with them?

MK: “Currency wars” are mostly speculation and prejudice. If all countries follow an inflationary monetary policy, this is not a currency war, this is global inflation. Replace "currency wars" in everything you read with "global inflation" and you won't go wrong.

The only time the phrase “currency war” is justified is when a country sells its own assets and buys equivalent foreign assets. If all countries do this, their trades are partially canceled out, but if a country or its central bank buys assets at a higher interest rate than the assets it sells, it is a monetary expansion, not a strike in a currency war.

Of course, monetary expansion affects interest rates, but if another country is unhappy with this effect on its own interest rate, it should simply counter with its own properly calibrated expansion. Such a response is not a salvo in a “currency war”, but an element of normal monetary policy.

C.T.: What motivates central banks to introduce negative interest rates?

MK: The job of central banks is to ensure price stability and sustainable economic growth by maintaining natural levels of production. To do these two things well, you need to resort to negative interest rates at least occasionally.

The Fed, European Central Bank, Bank of England, and now the Bank of Japan are targeting 2% inflation over the long term because they have not yet added negative fiat interest rates to their toolkit. Willingness to introduce a negative rate makes it possible to reduce the target inflation rate to zero - to true price stability. Additionally, the ability to use negative interest rates helps nip a recession in the bud. I think these are big enough benefits that most central banks will eventually add negative interest rates on fiat currencies to their arsenal.

Miles Kimball, negative interest rate expert and electronic money advocate .

George Samman

The phenomenon of negative interest rates is a modern trend that began in 2008. As a result of the financial crisis that broke out in the United States, the growth rate of leading economies slowed down, unemployment rose, and consumption declined. Central banks were forced to reduce interest rates in order to minimize Negative influence data trends on population and business. As a result, the discount rates of leading central banks were reduced to record lows:

The credit resource became more accessible, however, the policy of “cheap money” did not have the desired impact on macroeconomic statistics. This was largely due to the fact that the presenters. The USA was the quickest to realize this fact and responded to it - in 2008, an economic stimulation program was launched, called “quantitative easing” or QE.

The speed of decision-making predetermined the vector of further developments. Key US macroeconomic indicators have recovered to pre-crisis levels over several years, while their European counterparts remain less attractive even 6 years after the start of the crisis. A striking example— unemployment (the moments of the launch and completion of the US economic stimulus program are highlighted):

Despite low rates, the problem of European economic recovery remained, and when the threat of deflation was added to it, . The regulator carried out regular verbal interventions; in September 2014, a negative deposit rate was introduced, and in 2015, a rate similar to the American QE.

Negative rates in the Eurozone

The ECB's negative deposit rate does not have a direct impact on household savings in commercial banks, since it only applies to certain commercial bank accounts with the Central Bank. The key goal of introducing this measure is to restore the lost rates of economic growth and return inflation to the target level of 2%. With the help of an ultra-soft monetary policy, the Central Bank seeks to increase the rate of lending to the population. Currently, the level of household spending in the Eurozone is below pre-crisis levels:

“Cheap money” should stimulate consumption; if this indicator grows, it will increase retail sales, and business will be more willing to expand and, as a result, create new jobs. In addition, negative ECB deposit rates should encourage banks to increase the pace of lending to the real sector of the economy.

Negative yield?

The discount rate of the Central Bank of Switzerland and Denmark is at minus 0.75%, in Sweden – minus 0.1%. The logic of the central banks of these countries is similar to the logic of the ECB. At the same time, despite the fact that deposit rates for the population are not negative, the yield of individual debt securities was already negative. Similar situation observed in the government debt markets of Denmark, Sweden, Switzerland and Germany and was caused by increased demand.

This demand can be divided into speculative purchases in anticipation of the full implementation of the QE program; acquisitions by banks, which, in the context of negative ECB rates, consider it more rational to place reserves in high-quality debt securities; purchases of large institutional participants using a passive asset management strategy (for example, pension funds).

As the QE program increases, the ECB will buy more and more European debt securities, as a result of which both the yield on bonds of problem countries and the yield on debt securities of economies that are quite solvent will decrease. QE was launched relatively recently, and I think that in the future we can expect a continuation of the downward trend in yields on European government and corporate debt securities.

Declining profitability coupled with low rates lending will most likely contribute to a shift in interest separate groups investors and the growth of investment in the European stock market. Leading European stock indices have remained attractive since the announcement of the European QE program in October 2014 and are likely to remain so for a long time to come.

The EURUSD pair is declining due to a stable combination of the ECB's ultra-loose monetary policy and expectations of an upcoming rate hike from the US Federal Reserve. Long-term trend, the immediate goal is parity.

The effectiveness of negative rates

It will be extremely difficult to assess the impact of negative rates on the economy separately from other methods of stimulation, since this is a set of measures that are applied simultaneously and have a cumulative impact on macroeconomic statistics; in addition, the effect of their implementation will most likely appear with a significant time lag.

The growing popularity of ultra-loose monetary policy among leading central banks provokes a depreciation of the national currencies of countries involved in such a currency race. Business conditions are becoming increasingly attractive for exporters, while importers suffer as foreign goods become more expensive due to exchange rate differences.

The ultra-soft policies of individual countries lead to suppression of the exports of their trading partners if they do not take similar measures and the exchange rate of their national currency does not decline. In other words, the introduction of aggressive measures to stimulate the economy by the central banks of leading economies may provoke a deterioration in the macroeconomic indicators of their trading partners and, as a result, contribute to the introduction of similar monetary policies by the latter.

According to statistics, the EU's key importers are China (16.6%), Russia (12.3%), the USA (11.7%) and Switzerland (5.6%). The fall of the euro will primarily affect the volume of imports from China, the USA, and Switzerland, since the national currencies of these countries are strengthening or do not show a decline comparable to that observed in the European currency market. In my opinion, the era of negative rates will last at least 1.5 years, and the key indicator of its end is the state of the Eurozone economy.

More detailed information about the reasons for the decline of the EURUSD pair and the prospects for the US and EU economies and in the form.