The Attractions And Perils Of Negative Interest Rates

The global financial crisis has brought in an era of low interest rates. Eight years on from the onset of the crisis growth remains subpar and interest rates have drifted lower still, sometimes into negative territory.

In their search for new ways of boosting growth some central banks have set interest rates below zero. The European Central Bank (ECB) became the world's first central bank to do so in 2014. Denmark, Sweden, Switzerland and Japan have followed the ECB and introduced negative rates. In a development that seems to turn the rules of finance upside down, private sector banks in these countries have to pay the central bank to keep their money. The same logic is at work in the government bond market where investors are now paying the Japanese, German and Swiss governments for the privilege of lending them money.