The negative interest rate, which gains importance in global economies, has started to be seen as a solution for the economy, especially in the USA and the EU, especially to revive the economy, to maintain the value of the national currency and to achieve a certain growth by keeping inflation at the level of 2%.
Negative Interest Rate
In this study, the effects of negative interest rate applications, especially in developed economies, were investigated and the relationship between negative interest rate application and economic growth was determined. The aim of the study is to evaluate whether the negative interest rate can be applied in all countries and suggestions regarding the policy in question.
As a result, real interest rates, foreign investments and in countries in need of foreign currency flow negative interest rate portfolio investments may come to the country the implementation of policies such as Turkey are considered much that it can create lead to shift to other countries and the challenges of current account deficit financing.
Zero Interest Rate Policy (Zero Interest Rate Policy), which the United States has been implementing to stimulate economic growth since 2009, 18 European Countries using Euro with the statement of President of the Central Bank of the European Union (ECB) Mario Draghi in June 2014 It passed to the Negative Interest Rate Policy. With this move, the European Union Central Bank aims to stimulate the economy and prevent deflation (Irwin, 2014: 1).
The Central Bank of the European Union reduced the policy interest rate from 0.25% to 0.15% by 10 points, lowering the deposit interest rate from zero to minus 0.10% and launched the asset purchase program of € 400 billion (Monhagan, 2014: 1 ). The decrease in the deposit interest to the negative means that the European banks do not receive any interest in the money deposited (parked) in the Central Bank of the European Union, or even give money almost to the top.
Negative Interest Rate – Silvio Gessel
The negative interest rate was first proposed by the German economist Silvio Gessel towards the end of the 19th century. According to Gessel, the negative interest rate is a tax paid due to holding money (Mankiw, 2009). Especially in times of financial distress and stress, people prefer to keep money in their hands rather than lending money. In order to prevent people from holding cash, Gessel proposed that it be a bill or a valuable paper, in which money will turn into worthless after a certain period of time (maturity).
Similar to Gessel, John Maynard Keynes described negative interest rate as a tax for carrying or holding money (Mankiw, 2009). Later, FED (US Central Bank) expert and academician Marvin Goodfriend (1999) described the negative interest rate as a tax for possession of money, by putting a magnetic strip over the money, the transport tax was deducted after a magnetic strip was read by a device according to the time the person carried the money. proposed (McCullagh, 1999).
The negative interest rate attracts the attention of economists and the public opinion due to the importance of countries in development. The classical perspective is that the interest rate obtained from investments cannot be less than zero (Block, 1978: 121), (Buiter, 2009: 214). In an article by Gregory Mankiw to the New York Times Magazine in 2009, when many of the financial mathematicians described this assertion as an impossible argument and impossible (Ilgmann and Menner, 2011: 2).
Because, in such a situation, investors will prefer to keep the money (not to invest) as an alternative. However, there are several costs of holding money. These; The risk of theft can be counted as the costs associated with the depreciation of money, the storage and transfer of large amounts of money. In addition, large amounts of money are followed by governments (Anderson and Liu, 2013: 12).
Bank Interest Rates
The nominal interest rate of banks may be negative in some cases. For example, some deposit accounts in banks in the United States are insured by the American Federal Deposit Insurance Corporation (Federal Deposit Insurance Corp.-FDIC) for a certain cost. As a result of the insurance fee paid for these accounts deposited without interest, the depositor’s earnings may be negative.
Similarly, Inflation Protected Bonds issued by the Treasury in the United States; (Treasury Inflation Protected Securities) five-year maturities have a negative return from March 2011, seven-year maturities from August 2011, and ten-year maturities since December 2011. The returns of those with a twenty-year term are around zero (Anderson and Liu, 2013: 13
Negative interest rate application is also seen in Europe. Firstly, the negative interest rate started to be discussed and discussed in the Riskbank in Sweden and Nationalbank in Denmark in the years 2008 and 2009 after the global crisis. Both banks have taken decisions regarding interest rates in the form of deposit interest rate, overnight repo rate and lending rate, respectively.
Firstly, when deciding that the repo interest rate, which is the primary policy instrument, to be absolutely positive, they declared the less important deposit interest rate negatively. Between July 2009 and September 2010, Riskbank announced the interest rate of the 7-day deposit – 0.25%, and Denmark Nationalbank announced the 14-day deposit interest rate in July 2012 – 0.20% to reduce cash inflows to the euro area.
On the other hand, since investors in countries such as Germany, Denmark and Switzerland were looking for security, they seemed willing to pay a certain price in return. The returns of the 3-month treasury bills in Switzerland in mid-2011, the 3-month treasury bills in France in August 2012 and the 2-year government bonds in Denmark have turned negative since July 2012. The one and two-year bond yields issued by the German government resisted not to change from zero to negative (Anderson and Liu, 2013: 13). In spite of all this, investors are willing to bear zero or negative interest rates, and in terms of a price or a reserve for security.
Negative Interest Rate Policy
The examples given about the application of negative interest rates are remarkable because they are quite unusual (European Central Bank, 2014). Two problems have been raised in the discussions on this issue. Firstly, it has been stated that the negative interest rate policy can only be in economies where the economic viability is quite weak and previously reduced the interest rate level to zero.
In those periods, it will be very difficult to measure the credit worth of those who demand credit. In addition, the increase in the amount of loans given by banks during these periods becomes a separate problem. A second problem is that negative interest rate is interpreted as a tax applied in banks during financial expansion periods to be provided through loans to address financial recession.
In normal economic situations, nominal and real interest rates are positive. However, in exceptional cases, negative nominal and real interest rates can be considered normal, and both nominal and real negative interest rates can be interpreted as a price that investors will pay for security.
Negative Interest Rate