Swiss bank imposes negative interest rate.
Reuters:
Interesting.
The conventional wisdom is that one can't have negative interest rates. But Krugman's LS/IM model says that things break at the zero lower bound (ZLB) because, among other things, too many people want too much "safe" investment and there isn't enough.
It seems as though saying, "well, if you want these safe bonds/investments so much, pay us for them" is an option after all. Maybe it's something that the Fed and others should think about more seriously...
I just sent a pointer to the article to PK. Wonder if he'll say anything about it.
Cheers,
Scott.
ZURICH, Dec 18 (Reuters) - The Swiss National Bank announced a negative interest rate for the first time since the 1970s on Thursday, hoping that by forcing banks to pay to deposit francs it can stem a flight to the safe-haven currency sparked by euro zone fears and crisis in Russia.
In a surprise statement, the SNB said it would impose an interest rate of -0.25 percent on more than 10 million Swiss francs in commercial bank deposits from Jan. 22, when the European Central Bank holds its next meeting.
Growing worries that plunging oil prices may send the euro zone into a deflationary spiral are expected to push the ECB to buy sovereign debt early next year, piling pressure on the franc in recent weeks.
[...]
Denmark's negative interest rate on certificates of deposits, which ended in April, is widely viewed as a success, allowing the Danish central bank to keep the crown stable against the euro.
However, analysts estimate the policy, which was in place for nearly two years, cost Danish banks around 250 million Danish crowns ($41.38 million) in total.
Economists have warned negative rates could be expensive for Switzerland's large banking sector and would also have an adverse effect on pension funds and money market funds.
Commercial banks held 313 billion Swiss francs in sight deposits with the SNB at the end of last week - around half the Swiss annual gross domestic product.
Some rates in Switzerland are already effectively negative. The country's two largest banks, UBS and Credit Suisse , introduced a form of negative interest rates on bank clients' franc accounts in 2012 to deter rivals from hoarding the safe-haven unit by levying charges on those accounts.
Interesting.
The conventional wisdom is that one can't have negative interest rates. But Krugman's LS/IM model says that things break at the zero lower bound (ZLB) because, among other things, too many people want too much "safe" investment and there isn't enough.
It seems as though saying, "well, if you want these safe bonds/investments so much, pay us for them" is an option after all. Maybe it's something that the Fed and others should think about more seriously...
I just sent a pointer to the article to PK. Wonder if he'll say anything about it.
Cheers,
Scott.