Issue paper on negative interest rates.
“Like its peers in Denmark, the euro area, Sweden and Switzerland, the Bank of Japan will charge commercial banks for holding deposits with it. Almost a quarter of the world’s GDP now comes from countries with negative rates. Though they defy convention, they have proved a useful addition to the central-banking toolkit. The lowest deposit rate set by the central bank acts as a floor for short-term interest rates in money markets and for borrowing rates generally. Borrowing costs across Europe have tumbled, helping the fight against deflation and driving down exchange rates.” (Economist Feb 6, 2016)
Please address the issues below in the following sequence:
Why do central banks establish negative interest rates?
Why don’t depositors just switch to cash?
How is profitability of banks affected?
Are banks charging their own customers for deposits? Consider both large corporate customers and small retail customers (such as you and me).
What are the major advantages to negative interest rates?
What are the major disadvantages to negative interest rates?
Has the U.S. established or considered going to negative interest rates?
Has the country you selected established or considered going to negative interest rates?
Overall, are negative interest rates good or bad?
Other comments?
The paper should not exceed 5 pages, double-spaced.