> The debtor is also "free" to default and not give you back anything. The interest rate is supposed to reflect that risk. That is not the only thing interest

> The debtor is also "free" to default and not give you back anything. The interest rate is supposed to reflect that risk. That is not the only thing interest rate is supposed to reflect. Interest rate is supposed to also reflect the price of transferring your consumption over time (if you borrow , you want to consume earlier, if you lend, you want to consume later). And there is no real [1] reason why this price would have to clear only at positive values. So you have also possibly negative components on affecting the interest rate, thus it is completely feasible that the total interest rate is negative. [1] outside the flawed assumptions of economics textbooks, that is.