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Author Topic: IMF blog - How to Make Negative Interest Rates Work  (Read 146 times)
7jaka7
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April 23, 2019, 02:50:55 PM
 #1

It talks about the current state with negative interest rates. Which countries have some "maneuver" space. How long can this go. What is the problem regarding negative interest rates. How they don't affect cash and how to make it affect on it. How it could be solved using some kind of e-cash. Pros and cons. Link: https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-negative-interest-rates-work/

So even if the economy has been doing good in the last 10 years interest rates haven't increased. So what will central banks do to encourage spending after the downturn? If they would lower interest even more people would start to withdraw cash because at least they wouldn't be losing money on a bank. So they propose a solution to take money directly from our pockets. IMO this system is just set to be doomed... Is this a call for cryptocurrencies. This way they can't steal directly from our pockets.

Your thoughts?

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April 23, 2019, 03:24:41 PM
 #2

It talks about the current state with negative interest rates. Which countries have some "maneuver" space. How long can this go. What is the problem regarding negative interest rates. How they don't affect cash and how to make it affect on it. How it could be solved using some kind of e-cash. Pros and cons. Link: https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-negative-interest-rates-work/

So even if the economy has been doing good in the last 10 years interest rates haven't increased. So what will central banks do to encourage spending after the downturn? If they would lower interest even more people would start to withdraw cash because at least they wouldn't be losing money on a bank. So they propose a solution to take money directly from our pockets. IMO this system is just set to be doomed... Is this a call for cryptocurrencies. This way they can't steal directly from our pockets.

Your thoughts?

The European Central Bank has negative interest rates of -0.4% for banks who deposit their reserves with the central bank, and a 0% interest rate for consumers.

It's a disaster - because it is costing banks just to hold reserves at the central bank, it makes it harder for the bank to make a profit, and the number of European banks in trouble is increasing. Several German landesbanks are in trouble, ditto for italian and Spanish banks. The ECB needs to normalise and fast.

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April 23, 2019, 03:41:05 PM
 #3

This is going to be good for us. If the banks charge us for storing fiat currency in our savings accounts, then more and more people will try not to use fiat currency. When the inflation is in positive figures, then the negative bank interests can never work. The option is to store as low amounts of fiat as possible, and to increase the proportion of assets such as Bitcoin and bullion.

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April 23, 2019, 03:51:50 PM
 #4

This is going to be good for us. If the banks charge us for storing fiat currency in our savings accounts, then more and more people will try not to use fiat currency. When the inflation is in positive figures, then the negative bank interests can never work. The option is to store as low amounts of fiat as possible, and to increase the proportion of assets such as Bitcoin and bullion.
Haha it took me almost 5 minutes to figure out what you really mean by positive inflation figure, but all commercial banks in my country have reserve with the central bank running into billion but yet operate on a negative interest rates and it as bad as banks charging the customers for they debit card maintenance. So tell me when will they pay for your interest on you deposit or saving accounts. It time we move away from bank and store our asset on profiting currency such as bitcoin.
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April 23, 2019, 04:00:34 PM
Last edit: April 25, 2019, 09:19:26 AM by mindrust
 #5

It talks about the current state with negative interest rates. Which countries have some "maneuver" space. How long can this go. What is the problem regarding negative interest rates. How they don't affect cash and how to make it affect on it. How it could be solved using some kind of e-cash. Pros and cons. Link: https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-negative-interest-rates-work/

So even if the economy has been doing good in the last 10 years interest rates haven't increased. So what will central banks do to encourage spending after the downturn? If they would lower interest even more people would start to withdraw cash because at least they wouldn't be losing money on a bank. So they propose a solution to take money directly from our pockets. IMO this system is just set to be doomed... Is this a call for cryptocurrencies. This way they can't steal directly from our pockets.

Your thoughts?

The European Central Bank has negative interest rates of -0.4% for banks who deposit their reserves with the central bank, and a 0% interest rate for consumers.

It's a disaster - because it is costing banks just to hold reserves at the central bank, it makes it harder for the bank to make a profit, and the number of European banks in trouble is increasing. Several German landesbanks are in trouble, ditto for italian and Spanish banks. The ECB needs to normalise and fast.

This is the result of printing too much FIAT. First they printed it and now they can't destroy them back. In fact, they can't even stop printing more. Even the FED bowed down to Trump and slowed down the FIAT burn and the rate hikes.

One way or another, this system is going to collapse. There is no other way.

Rate hikes > Economy slowes down
Negative rates > Insolvent Banks

Wait a sec, Actually there is a way out...

Bitcoin > Fuck banks




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April 23, 2019, 04:05:57 PM
 #6

Bitcoin > Fuck banks

Do you think that Bitcoin or other cryptocurrencies are the ultimate solution for this? I can't even imagine actually how the world would be with only cryptocurrencies as money.
Do maybe capitalism need market-driven currency to fully flourish? I mean at the moment currency/money is totally controlled by country (aka. central banks, aka. people with a looooot of money)

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April 23, 2019, 04:12:00 PM
 #7

The most interesting aspect of that report is their plans for cash. It's often assumed that they want a drive towards cashlessness, and of course they do, but in this report it specifically lays out the plans they have to penalise cash even if it's still around and create a two tier system.

That's a new one on me. There's got to be a point where enough people have had enough. It's one thing to lightly disguise it with inflation and printing. It's quite another to present you with a bill for the honour of storing your increasingly worthless money.

If real people had seen some benefit from all the previous loopy policies it would be one thing, but this goes from quiet piss taking to outright savagery on your bottom and bottom line.

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April 23, 2019, 04:20:34 PM
 #8

Bitcoin > Fuck banks

Do you think that Bitcoin or other cryptocurrencies are the ultimate solution for this? I can't even imagine actually how the world would be with only cryptocurrencies as money.

Bitcoin and other crypto is not the solution to this problem. The banks and government are the problems for addressing too much interest rate when someone or a country loan to them. Banks and Government are greedy and the only way to solve this is to have some sort of revamp on their lending protocol.



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April 23, 2019, 04:30:30 PM
 #9

It talks about the current state with negative interest rates. Which countries have some "maneuver" space. How long can this go. What is the problem regarding negative interest rates. How they don't affect cash and how to make it affect on it. How it could be solved using some kind of e-cash. Pros and cons. Link: https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-negative-interest-rates-work/

So even if the economy has been doing good in the last 10 years interest rates haven't increased. So what will central banks do to encourage spending after the downturn? If they would lower interest even more people would start to withdraw cash because at least they wouldn't be losing money on a bank. So they propose a solution to take money directly from our pockets. IMO this system is just set to be doomed... Is this a call for cryptocurrencies. This way they can't steal directly from our pockets.

Your thoughts?
If anything, it's impressive that negative interest rates are being tabled as an actual economic strategy. Might as well just take all of your money out of the bank and stuff it under the mattress, and it'd actually gain value proportional to the interest rate lol. I don't see how they would prevent a bank run in a situation like that, unless they start to garnish wages at the source and that's their "negative" interest rate. Probably better to not give them that idea though, because they'd actually go through with that. It definitely shows that the system is doomed to fail if they have to believe that negative interest rates are the only way to fix the shitty state of the economy.

Assets, cryptos, precious metals, anything like that will be the only store of wealth if/when they practically introduce negative interest rates. Always be wary of what their plans are.
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April 24, 2019, 04:20:08 AM
 #10

According to the article, both cash and e-money are all reduced in value, so there is no safe place to hedge. Bitcoin has the opportunity to become a hedging tool, but it may not be the primary choice because of the price fluctuation. Maybe gold will be the first choice. Honestly, It looks chaotic.

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April 24, 2019, 04:33:15 AM
Last edit: April 24, 2019, 04:48:15 AM by mindrust
 #11

According to the article, both cash and e-money are all reduced in value, so there is no safe place to hedge. Bitcoin has the opportunity to become a hedging tool, but it may not be the primary choice because of the price fluctuation. Maybe gold will be the first choice. Honestly, It looks chaotic.

Gold is done. By "done" I mean literally and completely.

It is just a pump and dump stock coin being played by the banksters. There is zero chance for gold to be used as a medium of exchange.

Think it about like this; there are many online/physical  shops in many countries and they do accept bitcoin.

There are restaurants, domain/hosting sellers, drugstores, game/software sellers which do accept bitcoin.

I have never, ever seen a business which accepts "gold" as payment.

You know why?

Because gold sucks.

Edit: As a SoV, meh. It has a chance but still wouldn't overinvest in it. Takes too much space.




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April 24, 2019, 04:45:45 AM
 #12

There is zero chance for gold to be used as a medium of exchange.
Mate, I'm talking about the store of value (SOV) / hedging not the medium of exchange (MoE). However, I agree with you that gold is not useful for MoE. So the people have two options for MoE: (1) Cash/e-money that depreciates or (2) Bitcoin that fluctuates.

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April 24, 2019, 05:59:10 AM
 #13

Quote
To illustrate, suppose your bank announced a negative 3 percent interest rate on your bank deposit of 100 dollars today. Suppose also that the central bank announced that cash-dollars would now become a separate currency that would depreciate against e-dollars by 3 percent per year. The conversion rate of cash-dollars into e-dollars would hence change from 1 to 0.97 over the year. After a year, there would be 97 e-dollars left in your bank account. If you instead took out 100 cash-dollars today and kept it safe at home for a year, exchanging it into e-money after that year would also yield 97 e-dollars.

this is some cruel shit. they're literally gonna steal money from your bank account for saving and now they've figured a way to get their greasy fingers on your cash too.

There's got to be a point where enough people have had enough. It's one thing to lightly disguise it with inflation and printing. It's quite another to present you with a bill for the honour of storing your increasingly worthless money.

seriously, do they really think people won't see right through this? or do they assume people are too beaten down and docile to do anything about it?

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April 24, 2019, 08:05:48 AM
 #14

The European Central Bank has negative interest rates of -0.4% for banks who deposit their reserves with the central bank, and a 0% interest rate for consumers.

It's a disaster - because it is costing banks just to hold reserves at the central bank, it makes it harder for the bank to make a profit, and the number of European banks in trouble is increasing. Several German landesbanks are in trouble, ditto for italian and Spanish banks. The ECB needs to normalise and fast.
Insanity. I am not surprised to hear this and the IMF is actually thinking of making this worse. What in the world are they thinking? The figures that you mentioned are baffling.

I guess many customers might be thinking of pulling out their funds at this point and relocating to some other country where banks offer way better interest rates. I wonder how the impending 'Brexit' would affect all this in the future.
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April 24, 2019, 08:15:30 AM
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So even if the economy has been doing good in the last 10 years interest rates haven't increased. So what will central banks do to encourage spending after the downturn?
And this is one of the signs that the econnomy was good. If everything is fine then the inflation would be low and interest rates would also be at the low level. And this is also how banks encourage spending. The less interest rates they give, the more affordable loans people have. So people have more opportunities to get an affordable mortrage or open a new business and employ more people.
Where do you see the negative points?
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April 24, 2019, 03:00:01 PM
 #16


So even if the economy has been doing good in the last 10 years interest rates haven't increased. So what will central banks do to encourage spending after the downturn?
And this is one of the signs that the econnomy was good. If everything is fine then the inflation would be low and interest rates would also be at the low level. And this is also how banks encourage spending. The less interest rates they give, the more affordable loans people have. So people have more opportunities to get an affordable mortrage or open a new business and employ more people.
Where do you see the negative points?

In my question - what will they do when there will be downturn? Go to -5%?

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April 24, 2019, 04:26:31 PM
 #17

Any form of inflation is destined to lose anyway, these interest are what makes our world go to waste, if you ever read the "I want the earn 5% more" you will realize that the interest that is required from people is the cause of inflation since it can't be obtained by everyone, if someone manages to pay their debt back with interest that means someone has failed to do so and that is why we have inflation to make sure everyone pays or else they will get bankrupt which really hurts the economy.

People need to realize and do something about these interest rates even if they are given the money or they are taking out loans, both sides hurt the economy either because some fails to pay back loan or bank has to be ruthless to make more money to pay you your interest.


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magneto
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April 24, 2019, 11:11:03 PM
 #18

Very interesting piece.

Quote
The proposal is for a central bank to divide the monetary base into two separate local currencies—cash and electronic money (e-money). E-money would be issued only electronically and would pay the policy rate of interest, and cash would have an exchange rate—the conversion rate—against e-money. This conversion rate is key to the proposal. When setting a negative interest rate on e-money, the central bank would let the conversion rate of cash in terms of e-money depreciate at the same rate as the negative interest rate on e-money. The value of cash would thereby fall in terms of e-money.

This was what was the most striking in my opinion.

I can't really envision such a dual system to be used because of how inconvenient it would be, which is part of the reason why countries are currently pushing for cashlessness and gradually phasing out cash, so that the 0% interest rate floor is essentially wiped out. But without negative interest rates, the central bank can still perform quantitative easing regardless.

I don't know if this kind of artificially stimulated consumption can be sustainable in the long run, when you go into the negative territory. It'll be interesting when cash gets completely phased out what happens in countries with interest rates significantly below 0% (for retail, not interbank), though that might not be reality for a long time yet.

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April 26, 2019, 04:45:19 PM
 #19

I think banking system is really doomed. Imagine banks paying central bank just to hold reserves and how will this banks attract people to use banks with 0% interest rate for consumers. That is why most people are keeping away from banks, they are robbing people's money with their interest on loans and giving low interest on their deposits.

I my self don't keep my money on banks anymore, I kept most on cryptocurrency. I would rather risk my money with the market volatility than to keep my money sleeping in a cold room.

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