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Summary
- The Bank of England is considering negative interest rates.
- Yesterday, the Bank of England sent a letter to domestic banks to assess their readiness for negative interest rates.
- Does this imply that banks will start charging customers for deposits?
Details
The Bank of England sent a letter to domestic banks asking if they are prepared for negative interest rates. Bank of England Governor Andrew Bailey indicated that the economy might take longer than expected to recover from the pandemic.
But what does this mean for users' money in practice?
Negative interest rates mean central banks will charge financial institutions to hold money. Since holding cash will be costly for banks, they will encourage customers to avoid keeping money with them. This is intended to boost spending and risk-taking behaviors, both of which are aimed at revitalizing the economy.
So, have banks started charging deposit fees for customers as seen in some Scandinavian countries with negative interest rates?
Simon Peters, a market analyst at the social trading site eToro, commented: “I don’t think it will reach the point where banks charge consumers, but it will certainly encourage users to look for other profit-making opportunities instead of holding cash.”
Meanwhile, Yuval Reisman, CEO and co-founder of YRD Capital, a cryptocurrency hedge fund based outside London, noted: “If so, it would be another blow to consumers, as interest rates are already very low.”
Harold Montgomery, head of the Intercontinental Currency Printing Service at Wirex USA, suggested that banks may charge users depositing money, "with the European continent as an example."
“This means that if you deposit 100 GBP, the bank will reduce the value each month due to fees for holding the money. This will prompt users to spend in order to preserve the value of their money before it decreases.”
Rob Viglione, co-founder and CEO at Horizen Labs, summarized the situation succinctly: “No one knows what will happen with negative interest rates.”
Viglione cited research indicating that low interest rates could lead to increased investment in riskier assets.
Ultimately, the question is whether increased investment in riskier assets includes cryptocurrency. Bitcoin holders are likely hopeful that this will occur. However, with Brexit still ongoing and a long way to go, the UK government is currently accepting risks on behalf of its citizens.
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