It seems that in Europe negative interest rates are common place. Below are the current rates of some central banks:
European Central Bank -0.3%
Swiss National Bank -0.75%;
Danish Central bank -0.75%
Swedish Central Bank -1.1%
Why are they in negative territory?
For all these countries it is the the exchange rate against the Euro that is important. Negative interest rates weaken a country’s currency and make imports more expensive and exports cheaper. Furthermore central banks could be trying to prevent a slide into deflation, or a spiral of falling prices that could derail the recovery.
In theory, interest rates below zero should reduce borrowing costs for companies and households, driving demand for loans. In practice, there’s a risk that the policy might do more harm than good. If banks make more customers pay to hold their money, cash may go under the mattress instead. Janet Yellen, the U.S. Federal Reserve chair, said at her confirmation hearing in November 2013 that even a deposit rate that’s positive but close to zero could disrupt the money markets that help fund financial institutions. Two years later, she said that a change in economic circumstances could put negative rates “on the table” in the U.S., and Bank of England Governor Mark Carney said he could now cut the benchmark rate below the current 0.5 percent if necessary. Deutsche Bank economists note that negative rates haven’t sparked the bank runs or cash hoarding some had feared, in part because banks haven’t passed them on to their customers. But there’s still a worry that when banks absorb the cost themselves, it squeezes the profit margin between their lending and deposit rates, and might make them even less willing to lend. Ever-lower rates also fuel concern that countries are engaged in a currency war of competitive devaluations. Source: Bloomberg
ECONFIX 
Why negative interest rates?
Negative interest rates can exist on several levels, but are really simple to understand. Think of negative rates as dissuaders. Their purpose is to dissuade holders or potential buyers from either holding or buying.
Level I – between central and member banks.
If a central bank is charging a negative rate to its member banks, it is desiring that the banks no longer park their available funds with them. The central bank instead wants its members to use the funds in the purchase of productive investments, or in the loaning out of funds to stimulate a troubled economy. [Adding liquidity to the system.]
Level II – between banks and their customers.
If banks are charging customers for holding funds, then they want the customers to withdraw their funds and spend them to boost the economy, or to purchase securities. [Increasing spending in the economy stemming from a savings drawdown.] (Also, keep in mind that the easiest way to extract money from an economy being bombarded with monetary increases by the central bank is through purchase and sale of rising equities, dividend payments, or bond interest. And keep in mind that government officials are legally allowed to insider trade – which is illegal for everybody else because of the unfair advantage it gives the inside trader. So, negative rates, in this regard, are a boon to our highly corrupt and unethical politicians.)
Level III – between popular financial instruments and foreign holders or potential foreign purchasers.
If the negative rates have been extended to popular domestic financial instruments, the purpose is to dissuade foreigners from either holding the instruments or purchasing them. This will put a downward pressure upon the price of the domestic currency and assist exports in remaining competitive and guard against “hot money” inflows. {Keeping the domestic currency from appreciating & avoiding “hot money” inflows.]
An unintended consequence of negative rates is hoarding. Why spend money to jump start a moribund economy when one’s own financial situation is uncertain? It’s better to conserve one’s precious funds by placing them in a lock box, under a mattress, or under some inconspicuous rock in the back yard. However, abandoning currency in favor of digital money will make everything crystal clear to the tax collector, allow for easy fund confiscation as in a wealth tax, and guarantee that negative rates will result in spending, or else!
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Hi Steve, thanks for the detail and your analysis – most useful.
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