First Published 17 February 2016
At one time a zero interest rate was thought to be the lowest possible. No longer. It is not easy for banks and companies to keep money in the mattress and there are surprisingly few options to keeping the money in the bank. Until recently negative interest rates were not charged on private customers but a Swiss bank has now done that. Various ideas have been bandied around – pay the taxman and then claim it back later; pay creditors quickly and delay customer receipts; maximise stocks. Andy Haldane of the Bank of England has suggested abolishing cash so as to get rid of the mattress option. Harvard’s Ken Rogoff has calculated that the average American holds $4,000 in cash, much of which is probably used to hide money from the tax authorities, hence the call to ban high denomination USD and CHF banknotes. In the meantime rates are getting lower – Denmark’s deposit rate is -0.75% and Denmark’s -1.1%. 12 European countries have negative rates on two year bonds. Switzerland’s 10 year bond rate is negative – buyers are happy to pay this in order to hold Swiss francs which will likely strengthen against most other currencies. The latest moves include Japan issuing ten year bonds at -0.04% and Sweden lowering its main interest rate to -0.5%. 30% of global bonds now have negative yields (Source The Economist). Despite this productive investment is muted and central banks are running out of ammunition to tackle any downturns.