Is this good or bad? I don't understand how this can happen unless money itself loses nearly all value (i.e. storing the paper isn't even worth it, like in Germany after WWI). Can someone explain further?
Well, the pile of money that exists is much, much smaller than the value of everything in the economy. So at some level, it's not possible to convert your holdings to cash and sit on it. You need to hold "cash" in the form of bonds.
Even if you could hold paper cash, you'd still need to store and secure it, which costs money.
When looked at through that lens, it makes more sense. Rather than giving someone a loan that you expect to get paid for the risk, you're asking them to hold your money for a while, and they are expecting to get paid for the risk (of having to pay you back more in real terms than you lent them).
It doesn't mean the paper is worthless. On the contrary, the paper is more valuable than many other investment means. You are effectively paying a bank to guard your money with a negative rate, which makes sense. Guarding and protecting currency is not an easy task for an individual or business.
Negative interest rates are supposed to spur investment elsewhere. However, negative rates have not led to the desired economic expansion in places like Japan that have had them for years.
Inflation is very low in Denmark, near a deflation point, which is generally considered bad. The bank is trying to spur inflation with these negative rates.
It will be interesting to see what happens if the US ends up with negative interest rates. Japanese and EU banks won’t have assets they can buy to get yield from, nor will the US.
One could consider something like a Gold ETF where a percentage of the gold is sold every year to pay for the cost of storage as a negative interest rate cash alternative. You lose money every year too, but central banks can’t print it.
Money losing its value would be even worse for negative-nominal-rate lending. In a high/hyperinflationary environment, you'd look to hold easily stored goods that maintain their real value, and thus cancel inflation.
What would explain the current scenario, where lenders will lend at negative rates, is:
a) investing opportunities suck, and
b) they can't reliably hold their dollars/kroners anywhere cheaply.
So in a hyperinflation scenario, money could be losing value faster than the negative interest rate, so you're basically paying someone else to take on that risk/loss.
That makes sense, although another commenter said inflation in Denmark is very low right now, so it doesn't seem to apply here.
>So in a hyperinflation scenario, money could be losing value faster than the negative interest rate, so you're basically paying someone else to take on that risk/loss.
No, that still wouldn't favor this kind of lending, because the contract is specified in nominal terms, so you end up with less, even in that sense; it would always make more sense to buy something that holds its real value.
Now, if you were paying someone $1 to give you a can of tuna in a year, when tuna cans currently sell for $0.99, that might make sense in hyperinflation, because you'll get one tuna can worth of real value then, which you could legitimately value more than the dollar today.
But that's not what's happening here. They're paying $1 for $0.99 a year later. [1] There are very few scenarios where that makes sense, and especially not hyperinflation, where the $0.99 will only buy a hundredth of a can of tuna in a year.
[1] Not that specific ratio, just using those figures to keep the example simple.
Even if you could hold paper cash, you'd still need to store and secure it, which costs money.
When looked at through that lens, it makes more sense. Rather than giving someone a loan that you expect to get paid for the risk, you're asking them to hold your money for a while, and they are expecting to get paid for the risk (of having to pay you back more in real terms than you lent them).