The impotence of Central bankers

The cash should lose value: This radical proposal in a study by the International monetary Fund (IMF), the two Economists Katrin Assenmacher and Signe Krogstrup. In a recent online post, the IMF promotes. Assenmacher and Krogstrup were formerly in the SNB as researchers. The reason for the push is the fact that many Central banks can lower in the event of a further economic downturn or even a recession, your base rate little more further in the negative range. Negative interest rates mean that you have to pay for deposited money on it, instead of that, you get something.

The Swiss national Bank (SNB) has achieved its key interest rate range from -0.75 per cent, already an international record-low value. The connection to the cash: Only if it's worth it for anyone anymore, to evade, you can press the interest rate level much stronger than it is now in the negative range. Otherwise soft account holders, companies, and even banks these taxes on your deposits by hoarding just Cash. Up to now, it's not worth it for the negative interest rates Charged, especially because they would be the Cash holdings in the face of security and storage costs are more expensive.

The issue of lower interest rates currently has a particularly high sensitivity. The interest rates of the Central banks are the main Instrument against a decline in the economy. So you can bring the General level of interest rates usually Fall. As capital for investment becomes cheaper and people spend the money rather than place it on the high edge. In addition, there are also assets such as stocks, bonds, and real estate thrust and lowering the cost of the currency. All of this is fueling the economic engine again.

Half as strong economic growth

in the face of negative interest rates, the Central banks are now but largely powerless. For the next future no forecaster expected a recession or Similar. To observe a cooling-off compared to high growth rates until the summer of 2018, which should result in the current year according to the Economists of the Federal government, 1.5 percent, almost half as strong economic growth as in the previous year, when it amounted to 2.6 percent. From all sides, but emphasizes the risks that could hit the world economy harder than expected, and thus also Switzerland: the trade war, the unstable economic situation in Europe and a significant Economic downturn in China. An increase in the key interest rates are likely to remain therefore, already for a long time excluded, are convinced on the capital markets, many.

we calculated How the former Finance Minister and Economist Larry Summers from historical data, in a recession interest rate cuts of between 3 and 6 percentage points are necessary in order to give a business the necessary momentum. For Switzerland this would mean that negative interest rates would be lowered to -4 percent. Even in the United States – whose Central Bank has raised its key interest rate for the end of 2015, at least nine times to the current level of 2.25 to 2.5 percent, would then be the negative interest rates is necessary.

There is a lower limit, the negative interest rates with the economic does not affect – remain only their harmful effects.

A study in the Summers along with other Economists, this January has published, shows how quickly negative interest rates to limits. Only the first two cuts (to -0.1, and then to -0.25 percent) have led to the interest rates of the banks for mortgages and loans have also fallen. In addition, two interest rate cuts (to -0.35, and -0.5 percent) remained in effect. On the contrary, The mortgage rates are even increased. The Same was observed in Switzerland. An important reason for this is the increased pressure on margins of banks. While they have to pay negative interest on their deposits at the Central Bank, not to burden them with ordinary account customers – in contrast to large customers – so far in the rule. Most suffer only indirectly by the failure of the end of income on your savings and pension Fund assets. Because the charged but their interest rate margins, beating banks, the cost of negative interest rates on the mortgage interest, which is why this increase.

As Summers and his colleagues from their observation close, there is therefore a lower limit, the negative interest rates, the economy no longer affect only their harmful effects remain. In the case of negative interest rates of -4 per cent, the banks could hardly differently, to transfer these costs to their ordinary customers. A broad flight to cash, it would be expected. The expenditure for the hoarding and the hedge would be worth it then.

cash, can not abandon!

A number of Economists demanded, therefore, that cash equal to abolish. The two Economists Assenmacher and Krogstrup not keep this in your Work for the IMF for realistic. To big the role and the popularity of Cash in many countries – this is particularly true for Switzerland. Therefore, your proposal that the cash will lose in the same amount of value, as the deposits will be charged to the accounts. In this case, it would be provided (electronically usable) deposits the same and there would be no possibility of negative interest rates to avoid, how deep in the negative range you are always.

Specifically, banks are to receive, if you want to stand out at the Central Bank cash from their deposits, over time, more of it , because the value of Cash must be debited with decrease in the ratio of the reserves to the same extent as the reserves at negative interest rates. The same should also apply Vice versa for deposits. This means that the exchange rate reserves against Cash should be oriented to the prevailing negative interest rates of the Central Bank. The Economist put in a finally to ensure that the banks give these exchange rate for cash to their customers. Even if you emphasize that such a System can be relatively easily introduced, are tons of problems, including the one that prices and wages would no longer be in the now, constantly affected Cash, but in-the-money value of the deposits reported and the people in mind.

The national Bank does not want to take to this radical suggestion of their former employees position. Such a System could be implemented in Switzerland or anywhere else, is excluded in view of its complexity and radicalism, but as good as. Addressed for future response options in a crisis, that refers in the case of the SNB, to ensure that the measures to date have already proven to be effective and, if necessary, expanded: This refers to renewed foreign exchange purchases by the newly created Swiss francs, and a further reduction in key interest rates into negative territory.

The research by Assenmacher and Krogstrup makes clear, however, that the Latter is possible. Thus, more foreign exchange remained in the case of emergency purchases. However, in the face of a growing criticism of the scope of the SNB's balance sheet is also likely to be not easy. (Editorial Tamedia)

Created: 08.02.2019, 16:32 PM