A core component of economics and finance is what academics call the Time Value of Money. This concept stands for the fact (?) that a dollar today has greater value than a dollar to be received in the future. This is the economic basis for charging interest. Interest is the compensation required to get someone to postpone into the future the receipt of money rather than have those funds today.
Under this theory the rate of interest cannot be zero and certainly cannot be negative. But someone forgot to mention that to the Danes, whose central bank, nicely named the Nationalbanken now has officially adopted a negative interest rate policy.
Nationalbanken lowered its deposit rate to minus-0.2%, from 0.05%.
This means exactly what you would think it means.
banks and others seeking a haven, there is a downside to the Nationalbanken's
rare decision: They now face paying for the right to park their money in the
central bank. By dissuading banks from simply sinking money in ultra-safe
deposits at the central bank, Nationalbanken has driven down the attractiveness
of the currency and therefore softened the market. Denmark
Yep, no doubt about it. Make the interest rate on Danish krone negative and it will sure discourage most of us from holding Danish krone.
This is not the first time in the current financial crisis that interest rates have turned negative.
Yields on Swiss government debt, for instance, first turned negative last August when it was able to pay negative 1% for six-month paper. And Danish debt has also fetched negative yields at auction, with debt being sold at yields spanning negative 0.08% to negative 0.14% in recent months.
But the move by Denmark now means that text book authors in Finance and Economics now have to shout out that line from the great movies about reporters and newspapers,
“GET ME RE-WRITE!!!”