Since the world economic crisis began in 2008, central banks around the world have been ‘forced’ to issue negative interest rates on their customers’ savings accounts. This has led many people to start saving in cash, so as to not lose money to fees. However, authorities have begun to block the mass-moving of assets into cash so that the crisis is not exacerbated. There is speculation that this will trigger people to begin moving their assets into stocks and potentially cryptocurrencies.
Negative interest rates
Only recently, the Bank of Japan adopted a negative interest-rate strategy, on 29th January. The European Central Bank was the first major central bank to trial this strategy in 2004, and since the ramifications of this move were largely positive, policy makers across the globe are set to investigate the policy for their respective nations, despite the controversy that surrounds negative interest rates.
Sweden currently has negative interest rates, while Denmark protected its currency against the euro with negative rates in the past. Switzerland previously had negative rates in the 1970s, but recently, for the first time since then, it has moved its deposit rate below zero.
Central banks provide the benchmark against which all other banks calculate their borrowing costs. This means that many fixed-income securities, that is permissible investments with consistent dividends, are affected when negative interest rates are put in place. About a third of eurozone government-issued debt had negative yields by the end of 2015, meaning investors hoping to cash out when their investments mature won’t necessarily get all their money back. Although banks have largely avoided passing the negative rates onto customers, Julius Baer Group Ltd., Switzerland’s third largest wealth manager, has begun to charge its institutional clients, like pension schemes, fees when making large deposits. This may lead to many clients choosing other options for storing their money.
Storing in cash
Many have taken to storing their money in cash. However, authorities have begun to block the mass-moving of assets into cash so that the crisis is not exacerbated. Limits for cash values and transactions have been introduced. The biggest example of this is the EU’s banning of the 500-euro note. The reasoning behind the ban has been stated to be stopping the funding of terrorism in the wake of recent terrorist attacks in Europe. However, many suspect that, although terrorism will have factored into their decision, the halting of cash-saving will have also played a part.
Although many will choose to use traditional methods to store their money, like stocks, there is a growing excitement in the Bitcoin and cryptocurrency community as a whole, that at least some people will turn to cryptocurrencies for storing their money. Many expect that this will cause fiat currency-cryptocurrency exchange rates to significantly grow.
Thanks to Oleg Khovayko for proposing this article.
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