If you’ve read financial news at all over the past few years, you’ve likely noticed a weird term frequent the headlines.
The term, “negative interest rates,” and they’re exactly how they sound: in some countries, lenders are required to pay the intermediate institution and the borrower for forking out their cash, even though lenders are taking on risk.
This sounds bad, but for a majority of the lifespan of negative interest rates, these negative rates were only affecting those at the highest levels — high net-worth individuals and the banks themselves. Though this is changing.
Reports have revealed that retail consumers — like you or I — have begun to be affected by negative interest rates, meaning that the little savings they have are being eaten away with time by negative interest rates. Bitcoin, some suggest, “fixes this.”
Negative Interest Rates Hit Consumers
Ever since the Great Recession of 2008, central banks, by traditional standards, have been acting weird. Really weird. To ensure that the financial system is stable and prosperous, central banks the world over have implemented two key monetary measures: 1) quantitative easing, which is when a central bank purchases large amounts of securities and assets to increase market liquidity; and 2) low interest rates, which are seemingly being implemented to stimulate growth.
The latter has just become that much more controversial with news that a German bank has implemented a negative interest rate on the savings accounts — yes, savings accounts (I’m laughing with you) — of mom & pop German consumers.
According to a report from RFI, the Raiffeisen cooperative bank in Fuerstenfeldbruck, near Munich, will now be levying a -0.5% annual rate on savers, from big to small. The outlet suggests that only new customers and deposits to the bank will be affected, though this move is the first of its kind regardless.
Negative interest rates have now hit the average saver.
The first German bank will collect a “depositary charge” of -0.5 per cent on savings accounts with deposits of €1 and above.
Yet, Bitcoin is the "experiment" here?
— Rhythm (@Rhythmtrader) November 20, 2019
This financial imbroglio comes shortly after a Denmark bank began to charge clients with over $111,000 in their bank accounts a 0.75% yearly fee.
Hodlonaut, a legendary Bitcoin industry commentator, broke down why he believes negative interest rates are effectively the straw that will break the camel’s back. As he explained, your income is taxed, your assets are taxed, everything is with time taxed via inflation, and then you slowly watch your capital evaporate because of negative interest rates.
While it seems that only a small portion of the globe is being affected by negative interest rates, the virus is spreading, so to speak. In September, President Donald Trump wrote on Twitter that the Federal Reserve needs to “get our interest rates down to ZERO, or less.”
This assertion came shortly after the former chairman of the Federal Reserve, Alan Greenspan, said that it is only a matter of time before the U.S. (and thus the rest of the world) implements negative interest rates on a widespread scale.
Bitcoin, the Perfect Solution
Many say that in these tumultuous macroeconomic times, Bitcoin is the perfect solution. When sovereign debt bonds and bank accounts carry a negative interest rate, it makes sense for investors to allocate their capital to an asset that produces better yields, like the 0%-yielding Bitcoin or gold. Also, some think that monetary policy will eventually lead to rampant inflation in sovereign currencies, validating the need for something like Bitcoin, which is disinflationary and non-sovereign.
This has been corroborated by Jim Reid, Head of Global Fundamental Credit Strategy at Deutsche Bank, who earlier this year said that if central banks are aggressive with their monetary policy, then alternative currencies and investments like Bitcoin and gold become somewhat tantalizing.