It’s a negative interest rate for banks to keep their money with a central bank. It is supposed to discourage banks from hoarding money and stimulate the economy by giving out more loans. Like all things economic there are debates about if it works or not.
But it's not just the rate with the central bank, they're forcing high street banks to prove that their systems can handle negative interest rates for consumer loans and mortgages.
It's obvious that it doesn't work. In order banks be able to lend money it's necessary the existence of business and households that want to spend money instead of saving.
What we are seeing, is the result of using the wrong tool, monetary policy instead of fiscal policy, because ideological reasons.
>What we are seeing, is the result of using the wrong tool, monetary policy instead of fiscal policy, because ideological reasons.
Yeah this is pretty much it. Businesses do benefit from lower interest rates but beyond a certain point they have zero trouble financing the investments they want to make. After that you have to figure out how to convince people to spend money and if people don't have money to begin with you have to give it to them somehow (most likely candidate is government spending).
That’s the idea, yes. But it should be pretty obvious that it doesn’t work, for the same reasons QE doesn’t. Because banks can’t actually ‘loan out from reserves’ to their customers (they can loan reserves to other banks, but can’t to anyone who doesn’t have an account with the central bank). It actually can’t be made to work in terms of accounting operations. The role of reserves is settling transfers, so the bank obviously needs to have them as part of the process, but that happens later, after the loan is written (which creates the asset (loan) and liability (deposit) on the bank’s balance sheet). So having excess reserves doesn’t really increase the bank’s ability to extend more loans anyway, and taxing reserves just makes the bank want to buy more equities to get a positive rate.