The minutes from the Executive Board’s monetary policy discussion will be published on 16 July. The decision on the repo rate will apply with effect from Wednesday, 8 July. The deposit rate is at the same time cut to -0.25 per cent and the lending rate to 0.75 per cent.
In economics, nominal values are the face value of currency over long periods of time (years), whereas real values have been corrected for inflation (real vs nomindal, as explained on Wikipedia).
This probably means that you will lose money for keeping it into a savings account (and so will the depositary banks?).
Of course, this is a completely useless and stupid move, since the only real effect will be that people will start keeping their money at home in form of cash. Or, since there are always unintended consequences to governement actions, we could have: a boom in companies manufacturing or installing safes, or storage companies providing high security, or even better, a move into gold and silver bringing the collapse of the government's fiat currency.
- Article on About.com
- Real interest rate on Wikipedia
- Nominal interest rate on Wikipedia
[Update] Negative interest rates happened in the past, though not to such an extent:
In a world with negative interest rates, a bank would charge you money every month for leaving funds in their care, and would pay you to borrow money from them. It is difficult to imagine such a bizarro world lasting for long. [...]
Two examples of negative interest rates are worth discussing. During the 1970s, Switzerland offered negative interest rates, but only to foreigners. This weirdness emerged because of significant speculative interest in owning Swiss francs, on which the foreign investors expected to make so much money that they were willing to pay for the privilege of holding the currency. Economists note the complexity of this example and typically treat it as a special case that does not break existing models.
[My comment: At that time, the USD was collapsing due to super inflation, and the Swiss Franc was still backed by gold]
The second example is Japan, which has had negative interest rates in the international markets intermittently since 1998. For most of this time, these were merely negative nominal rates, possible because the Japanese economy has been in deflation through this time as well. If you are borrowing at -1% and your salary contracts at -2%, the real cost of borrowing is still a positive 1%.[My comment: This still doesn't make sense in a normal world were banks could not create money out of thin air. With negative nominal interest rates, you would be better off keeping your money and not lend it, than lend it a receive back a lesser amount.]
However, on January 24, 2003, normal Japanese domestic interest rates went negative. Banks lent money on Friday night and accepted back a smaller amount on Monday morning. Why would they do this?[My comment: Because they are stupid?]
No comments:
Post a Comment