Notesale: Turn your study into money

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What is a negative interest rate?
Normally, borrowers pay lenders rate as an annual percentage on the amount borrowed
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This was a bedrock hypothesis across many centuries of financial history
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Lenders have to pay to lend money
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The result is a collapse
in aggregate demand, which leads to prices dropping even further, a slowdown or breakdown in real
production which leads to escalation in redundancy
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(C
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, 2016)
Theoretically, the central bank, and perhaps private banks, is going to charge negative interest – instead
of receiving money on deposit, depositors will pay for the benefit of parking their money into the bank
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NIRP try to motivate banks to lend their extra cash, if any, to businesses and
customers
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(Steenis, 2016)
In June 2014, the European Central Bank imposed a NIR
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Denmark, Sweden and Switzerland have
introduced a NIR on commercial banks’ excess funds held on deposit at the central bank
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(Walker, 2016) The issue which arises here is:
Does any bank want to pay another bank to look after their money? European banks are required to
hold reserves at the central bank (ECB)
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Even if
banks do not use the ECB’s deposit facilities, negative rate will apply to the bank’s surplus reserves
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In theory, interest rates below zero reduce borrowing costs for
companies and households, driving demand for loans
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If banks make more customers to pay to hold their money, cash may go
beneath the mattress instead
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The flip side would be: the longer it takes to repay a NIR
loan, the less they owe, even if they do not pay anything

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