Negative Interest Rate Policy — Paying a Fee to Deposit Your Money?
It is common sense that depositing money at a bank earns you interest, but what if you had to pay a storage fee instead? It sounds imaginary, but it actually happened in Europe and Japan.
What Is a Negative Interest Rate
A negative interest rate policy (NIRP) is when a central bank lowers the policy rate below zero. Typically it applies a negative rate (in effect a storage fee) to the excess reserves that commercial banks deposit at the central bank.
The goal is to pressure banks not to pile money up at the central bank but to lend it to businesses and households, thereby lifting the economy and prices. It is an extreme card played when even a zero rate is not enough, as in a liquidity trap.
The History of Adoption
The first place to attempt a negative interest rate was the central bank of Sweden, which lowered its deposit rate to −0.25% in July 2009.
It spread in earnest after 2014. The European Central Bank (ECB) lowered its deposit rate to −0.1% in June 2014, and then Denmark (September 2014), Switzerland (December 2014), Sweden (February 2015), and Japan (February 2016) joined the negative-rate ranks.
It was a time when negative short-term rates, once considered "impossible," actually became reality.
The exact timing and magnitude of each country's adoption may differ in detail across sources. It is enough to remember the broad arc (Sweden leading → the ECB in 2014 → Japan in 2016).
Why the Goals Differed by Country
Interestingly, the reasons for using negative rates differed from country to country.
Japan, the ECB, and Sweden mainly used them to prevent deflation, stimulate the economy, and push prices up toward the 2% target.
Denmark and Switzerland, by contrast, had different goals. During the eurozone crisis, funds flooded into their currencies as safe havens; their negative rates were a defensive measure to keep their own currencies from becoming excessively strong and to curb excessive capital inflows.
Negative rates also had large side effects (weaker bank profitability, a burden on savers, and so on), so most have now been normalized. The very fact that "even such extreme policies existed" reveals one side of an era of low growth and low inflation.
常见问题
Q. If rates are negative, is money drained from my deposits too?
In practice, it was rare for negative rates to be applied directly to ordinary retail deposits. They mainly applied to the reserves that banks deposit at the central bank, and individuals felt them as interest approaching zero. That said, in some countries a storage fee was charged on very large deposits.
Q. Did negative rates work?
Assessments are mixed. Some analyses argue they had some effect on currency values and prices, but the side effects, such as weaker bank profitability, were also clear. Both the effects and the side effects must be weighed together; it was not a cure-all.
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