Private sector banks in these jurisdictions were forced to pay their central banks to keep their money on reserve. Penalising cash on deposit, negative rates were supposed to jolt spending and encourage banks to extend loans, bolstering broader growth.
In reality the policy squeezed banks – given their reluctance, fearing mass deposit withdrawal, of passing negative rates on to front line customers.
So bank balance sheets weakened, making them more unstable, and less willing to extend loans. Across the eurozone, as in Japan, countless smaller, regional banks, so important for on-the-ground commerce, have cut lending.
Along with pension funds and life insurance companies, they’ve been forced to shore themselves up by “searching for yield” – given the now deeply negative returns on government bonds and other fixed income investments such institutions need. And that’s driven yet more “mainstream” cash into risky, speculative investments.
So negative rates don’t encourage growth.
But they do encourage banks to channel even more money into speculative activity, investment which plays no role in the financing of regular business activity that creates jobs and generates broader recovery. And that what this is really all about.
Large financial institutions want negative rates to, once again, boost stock and bond markets that are already massively bloated. Cowed into submission, politicians and central bankers will no doubt give them want they want.
Far from mending our economy, quantitative easing and ultra-low rates could provoke another crash. Even more QE and negative rates make such dangers more acute still.
And, on top of all that, negative rates fan the flames of international tension – given that a big reason central banks use them is to grab competitive advantage via resulting currency depreciation.