Imagine
being asked to pay your bank for the privilege of depositing your
money in it. Most of us think that we are victims of reverse bank
robbery already. But actually give them money to take our money?
The Bank of England moved rapidly yesterday to insist that the policy
of negative interest rates, floated by bank official, Paul Tucker,
was “very blue sky thinking” and anyway wouldn't affect the
deposit rate that is paid to ordinary savers, only big banks.
Though, as we'll see, that isn't strictly true.
The
main reason the Bank of England is talking about negative interest
rates is to force the banks to lend to business. Much of that
quantitative easing money that is being printed and handed,
effectively, to the commercial banks is being redeposited with the
Bank of England. Yes, the banks get electronic money from the Bank
of England; then they deposit it back with the Bank of England to
earn interest on the cash it has printed.
You
might think that is the economics of the mad house, and you might
well be right. But in the paradoxical world of high finance, this is
considered a sound monetary policy.
