4 ms·

Some context: Denmark has maintained a pegged currency policy since the 1980s, first against the D-mark, then since the Euro. To maintain this, the Danish Nat

by Svip 5y ago

Some context: Denmark has maintained a pegged currency policy since the 1980s, first against the D-mark, then since the Euro. To maintain this, the Danish National Bank needs to maintain inflation, and that usually entails keeping interest rates below what the European Central Bank's interest rate is. I believe the ECB's interest rate is currently 0 or 0.5%, and thus the Danish National Bank's interest rate is negative to maintain the DKK loosely pegged to the EUR. This means, it costs money for regular banks to have their customers' money at the National Bank, and therefore offsetting the cost to their own costumers. Initially, the limited was 750'000 DKK before the negative rates would kick in, then 250'000 and now 100'000. Danske Bank is hardly alone in this, a lot of other Danish banks have already done the same. The slow lowering of the limits is indicator that the banks more and more believe that the negative rates at the National Bank will remain with no end in sight. Disclaimer: I am not an economist.

airstrike 5y ago
Also not an economist, but topics like this always remind me of the Impossible Trinity and how different countries solve for different pairs of policies out of the three available choices https://en.m.wikipedia.org/wiki/Impossible_trinity https://en.m.wikipedia.org/wiki/Impossible_trinity
- kqr 5y ago
  I might be biased here, but isn't a fixed exchange rate somewhat of a false sense of security anyway? As in it's great because it reduces volatility of unhedged contracts most of the time, but when it finally goes it tends to do so dramatically?
legulere 5y ago
There are three main interest rates of the ecb: https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...
IkmoIkmo 5y ago
So there are various ECB rates, the one that's key here is the deposit facility rate. It's the rate at which banks can deposit money with the ECB overnight. This means if there's tons of excess deposits from customers, this rate applies. It's currently -0.5% so banks have an incentive to not become the bank of choice for cash hoarders, plus there's obvious incentives for many banks to try and push its users to other products such as brokerage which many banks offer in some form. This is why you find these negative rates in many more countries in Europe. The Netherlands and Germany, for example. My bank charges negative interest, too, above 100k.
- wodenokoto 5y ago
  100k what? Euro? That what be equivalent to the 750.000dkk limit parent listed as, old, initial limit that was lowered twice to reach the current 100k DKK limit. The news (at least to Danes) isn’t that the bank may charge negative interest, but the at they are starting doing to savings we might actually have in the bank.
  - JohannesH 5y ago
    It's a 100.000 DKK limit. A Lot of people will be affected (not by much though). My girlfriend will have to pay about 300 DKK a year for having somewhere between 100k-200k in her account. I got my money in investments so I pay more than her in various fees, though I usually also make more while the market is climbing.
  - IkmoIkmo 5y ago
    My post was mostly about the fact the ECB has negative rates, not a 0 or 0.5% rate as parents' comment listed. The 100k is just an example from my country to indicate the negative ECB rates have been affecting most EU countries. I think the more interesting discussion personally would be on inflation, rather than interest rates. In purely financial terms as an individual you tend to only care about purchasing power. I have a bunch of friends who're worried about paying -1% interest while they've held cash at 2-3% inflation for years.
    - 5y ago

by Svip 5y ago

airstrike 5y ago

Also not an economist, but topics like this always remind me of the Impossible Trinity and how different countries solve for different pairs of policies out of the three available choices https://en.m.wikipedia.org/wiki/Impossible_trinity https://en.m.wikipedia.org/wiki/Impossible_trinity

kqr 5y ago
I might be biased here, but isn't a fixed exchange rate somewhat of a false sense of security anyway? As in it's great because it reduces volatility of unhedged contracts most of the time, but when it finally goes it tends to do so dramatically?

legulere 5y ago

There are three main interest rates of the ecb: https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...

IkmoIkmo 5y ago

So there are various ECB rates, the one that's key here is the deposit facility rate. It's the rate at which banks can deposit money with the ECB overnight. This means if there's tons of excess deposits from customers, this rate applies. It's currently -0.5% so banks have an incentive to not become the bank of choice for cash hoarders, plus there's obvious incentives for many banks to try and push its users to other products such as brokerage which many banks offer in some form. This is why you find these negative rates in many more countries in Europe. The Netherlands and Germany, for example. My bank charges negative interest, too, above 100k.

wodenokoto 5y ago
100k what? Euro? That what be equivalent to the 750.000dkk limit parent listed as, old, initial limit that was lowered twice to reach the current 100k DKK limit. The news (at least to Danes) isn’t that the bank may charge negative interest, but the at they are starting doing to savings we might actually have in the bank.
- JohannesH 5y ago
  It's a 100.000 DKK limit. A Lot of people will be affected (not by much though). My girlfriend will have to pay about 300 DKK a year for having somewhere between 100k-200k in her account. I got my money in investments so I pay more than her in various fees, though I usually also make more while the market is climbing.
- IkmoIkmo 5y ago
  My post was mostly about the fact the ECB has negative rates, not a 0 or 0.5% rate as parents' comment listed. The 100k is just an example from my country to indicate the negative ECB rates have been affecting most EU countries. I think the more interesting discussion personally would be on inflation, rather than interest rates. In purely financial terms as an individual you tend to only care about purchasing power. I have a bunch of friends who're worried about paying -1% interest while they've held cash at 2-3% inflation for years.
  - 5y ago