In July, Denmark’s central bank, Nationalbanken, cut the rate it pays on deposits from banks to negative 0.2%, in effect charging banks for holding their money. The Danish experiment with rates is being watched worldwide, according to a Financial Times story posted on CNBC.
Denmark is not a member of the euro zone, and Nationalbanken was striving to maintain the Danish kroner’s peg to the euro as skittish investors looking for a safe haven moved money to Denmark. The negative yield could also encourage banks to lend more, rather than paying up to hold funds at the central bank.
Central banks have been keeping official rates quite low to encourage growth, but negative rates are still a novelty, although Sweden employed them in 2009 and 2010. But the story cites reports that the European Central Bank recently warned that its deposit rate, currently at zero, could go negative.