6 ms·

Sweden Cuts Deposit Rate to Negative 0.25%

45 points by gasull 17y ago

forinti 17y ago
I guess now is a good time to be a burglar, as people will be stuffing money into their mattresses.
- tomjen 17y ago
  Not really, as inflation is properly damaging more than this negative interest.
  - systems 17y ago
    to fight inflation you raise interest rates, so that citizens spend less and save more. by cutting interesting rates they are encouraging spending, and increasing inflation! they can of course just move their saving elsewhere (another country) where rates are better! Which is what I would do, at least in the short term!
    - jacquesm 17y ago
      yes, like Iceland. Oh, wait...
  - Tuna-Fish 17y ago
    The very reason they did this is that inflation is currently negative -- that is, Sweden is suffering deflation. Money stuffed into a mattress appreciates in value as time passes.
  - pmorici 17y ago
    Can you explain how that is possible? In my understanding, if the interest rate is negative then the bank is, in other words, charging you a fee to keep your money there plus you are still taking a hit from inflation so at least if you take all your money out of the bank you are only taking the hit from inflation and not having to pay the bank a monthly fee to do so.
    - Retric 17y ago
      In a word: Deflation.
      - pmorici 17y ago
        Even then leaving your money in the bank at a negative interest rate would not be better than having it in a mattress discounting physical theft risks of course.
deleted 17y ago
[deleted]
tybris 17y ago
Sweden's lost decade?
Yrlec 17y ago
The negative rate only applies for banks which store their money overnight at the Swedish Central bank (Riksbanken). The interest rate at peoples' bank accounts is stil positive. They do this to force the banks to lend the money they lend from the Riksbank, and not just keep it (to reduce the bank's liquidity risk). It's stil very low though. Too low if you ask me, solving an economic crisis through inflation is just the same thing as forcing everyone to lower their salaries, but people don't understand that so it's easier to get away with it.
- pj 17y ago
  The same thing will happen in the United States. It's only a matter of time. It has been talked about plenty of times. It's interesting to see Sweden is actually being a leader in the financial markets.
  - anigbrowl 17y ago
    I agree. I look forward to seeing how this is reported in the Economist which for several years insisted as a matter of fact that negative interest rates were impossible (I suspect this represented the view of one particularly dogmatic editor).
    - Confusion 17y ago
      Much depends on the exact phrasing. Offering negative interest rates on consumer accounts is ludicrous to the point of rendering it impossible. For a national bank, nah, not so much.
      - johnwatson11218 17y ago
        Actually I remember a few years ago reading an article that said that the Federal Reserve was studying the feasibility of embedding RFID tags into paper currency. Doing so would allow the banks to know how long a particular note had been out of the banking system and stuffed in a mattress. Then a penalty could be assessed when the note was redeposited. The article said that such a system could allow banks to pay negative interest rates but still be less of a penalty than the penalty for hording cash. As I recall the article said that a $100 bill would be worth about $10 less every month that it was kept out of the banking system – just as an example of how it could work. This is a different article that talks about the same idea in Japan http://business.timesonline.co.uk/tol/business/economics/article6531299.ece http://business.timesonline.co.uk/tol/business/economics/art...
brown 17y ago
This is a really interesting follow up to a great Atlantic article I saw a couple weeks ago: http://www.theatlantic.com/doc/200907/ideas-tax http://www.theatlantic.com/doc/200907/ideas-tax The general concept is that the only thing that should be taxed is behavior we don't want, which is unproductive assets. We should encourage people to work, so income tax is bad. We should encourage commerce, so sales tax is bad. We should encourage people to accumulate wealth, so basic property tax is bad. BUT, we should discourage unproductive assets, so we should tax them. A negative deposit rate is essentially a tax on unproductive assets. Maybe this is the way of the future.
- johnnybgoode 17y ago
  > unproductive assets You mean savings? As in, we should discourage the key to long-term prosperity?
  - Eliezer 17y ago
    You're confusing savings (holding debts that someone else supposedly must pay, in this case, central bank debt) with investment.
    - johnnybgoode 17y ago
      No, I'm not. Savings precede investment.
      - wlievens 17y ago
        Yeah, you save up a good chunk of money before even starting to think about buying a house (through a mortgage).
  - lallysingh 17y ago
    On a sidebar (I'm doing that a lot today on HN), pure savings are pretty unproductive, they'll lose value against inflation.
- drawkbox 17y ago

45 points by gasull 17y ago

forinti 17y ago

I guess now is a good time to be a burglar, as people will be stuffing money into their mattresses.

tomjen 17y ago
Not really, as inflation is properly damaging more than this negative interest.
- systems 17y ago
  to fight inflation you raise interest rates, so that citizens spend less and save more. by cutting interesting rates they are encouraging spending, and increasing inflation! they can of course just move their saving elsewhere (another country) where rates are better! Which is what I would do, at least in the short term!
  - jacquesm 17y ago
    yes, like Iceland. Oh, wait...
- Tuna-Fish 17y ago
  The very reason they did this is that inflation is currently negative -- that is, Sweden is suffering deflation. Money stuffed into a mattress appreciates in value as time passes.
- pmorici 17y ago
  Can you explain how that is possible? In my understanding, if the interest rate is negative then the bank is, in other words, charging you a fee to keep your money there plus you are still taking a hit from inflation so at least if you take all your money out of the bank you are only taking the hit from inflation and not having to pay the bank a monthly fee to do so.
  - Retric 17y ago
    In a word: Deflation.
    - pmorici 17y ago
      Even then leaving your money in the bank at a negative interest rate would not be better than having it in a mattress discounting physical theft risks of course.

deleted 17y ago

[deleted]

tybris 17y ago

Sweden's lost decade?

Yrlec 17y ago

The negative rate only applies for banks which store their money overnight at the Swedish Central bank (Riksbanken). The interest rate at peoples' bank accounts is stil positive. They do this to force the banks to lend the money they lend from the Riksbank, and not just keep it (to reduce the bank's liquidity risk). It's stil very low though. Too low if you ask me, solving an economic crisis through inflation is just the same thing as forcing everyone to lower their salaries, but people don't understand that so it's easier to get away with it.

pj 17y ago
The same thing will happen in the United States. It's only a matter of time. It has been talked about plenty of times. It's interesting to see Sweden is actually being a leader in the financial markets.
- anigbrowl 17y ago
  I agree. I look forward to seeing how this is reported in the Economist which for several years insisted as a matter of fact that negative interest rates were impossible (I suspect this represented the view of one particularly dogmatic editor).
  - Confusion 17y ago
    Much depends on the exact phrasing. Offering negative interest rates on consumer accounts is ludicrous to the point of rendering it impossible. For a national bank, nah, not so much.
    - johnwatson11218 17y ago
      Actually I remember a few years ago reading an article that said that the Federal Reserve was studying the feasibility of embedding RFID tags into paper currency. Doing so would allow the banks to know how long a particular note had been out of the banking system and stuffed in a mattress. Then a penalty could be assessed when the note was redeposited. The article said that such a system could allow banks to pay negative interest rates but still be less of a penalty than the penalty for hording cash. As I recall the article said that a $100 bill would be worth about $10 less every month that it was kept out of the banking system – just as an example of how it could work. This is a different article that talks about the same idea in Japan http://business.timesonline.co.uk/tol/business/economics/article6531299.ece http://business.timesonline.co.uk/tol/business/economics/art...

brown 17y ago

This is a really interesting follow up to a great Atlantic article I saw a couple weeks ago: http://www.theatlantic.com/doc/200907/ideas-tax http://www.theatlantic.com/doc/200907/ideas-tax The general concept is that the only thing that should be taxed is behavior we don't want, which is unproductive assets. We should encourage people to work, so income tax is bad. We should encourage commerce, so sales tax is bad. We should encourage people to accumulate wealth, so basic property tax is bad. BUT, we should discourage unproductive assets, so we should tax them. A negative deposit rate is essentially a tax on unproductive assets. Maybe this is the way of the future.

johnnybgoode 17y ago
> unproductive assets You mean savings? As in, we should discourage the key to long-term prosperity?
- Eliezer 17y ago
  You're confusing savings (holding debts that someone else supposedly must pay, in this case, central bank debt) with investment.
  - johnnybgoode 17y ago
    No, I'm not. Savings precede investment.
    - wlievens 17y ago
      Yeah, you save up a good chunk of money before even starting to think about buying a house (through a mortgage).
- lallysingh 17y ago
  On a sidebar (I'm doing that a lot today on HN), pure savings are pretty unproductive, they'll lose value against inflation.
drawkbox 17y ago