Negative Interest Rates
Negative interest rates
As a result of our current economic situation, the bank is contemplating lowering interest rates to a monumental level. They are suggesting we make them negative. This would mean it would cost money to save money; the intention behind this is to stimulate spending within the economy. If businesses are forced to spend more money, then aggregate demand shifts to the right as investment, one of the components of AD, has been increased.
Although, the interest rate isn’t simply one rate it can be divided into 3 main components: base rate, overnight rate and weekly rate. The base rate is unchanged, and remains the same, although the overnight rate and weekly rate are significantly altered. The overnight rate is the interest rate that banks charge each other to borrow and lend money in the overnight market. Weekly rates are also rates that effect the short term loans and borrowing between banks.
This method has been adopted by various other countries as a solution to their economic situations. For example Denmark cut one of their interest rates to below zero. Although this had a very negative effect on their economy, they found their exchange rate rising rapidly. This destroyed the domestic industry, and the economy is unlikely to re-obtain its competitive edge.
In the 1970’s Switzerland used negative interest rates as a dissuader to prevent the capital from flooding as investors looked for a safe haven from global inflation.
Although the concept of negative interest rates shouldn’t be seen as a burden for the economy, the concept originally thought up by Silvio Gesell, the main intention is to stimulate consumer spending and because it costs money to save money this ideal is achieved and the economy benefits from this.
So to conclude I strongly recommend use of negative interest rates within the UK economy, it would ultimately speed up our economic
As a result of our current economic situation, the bank is contemplating lowering interest rates to a monumental level. They are suggesting we make them negative. This would mean it would cost money to save money; the intention behind this is to stimulate spending within the economy. If businesses are forced to spend more money, then aggregate demand shifts to the right as investment, one of the components of AD, has been increased.
Although, the interest rate isn’t simply one rate it can be divided into 3 main components: base rate, overnight rate and weekly rate. The base rate is unchanged, and remains the same, although the overnight rate and weekly rate are significantly altered. The overnight rate is the interest rate that banks charge each other to borrow and lend money in the overnight market. Weekly rates are also rates that effect the short term loans and borrowing between banks.
This method has been adopted by various other countries as a solution to their economic situations. For example Denmark cut one of their interest rates to below zero. Although this had a very negative effect on their economy, they found their exchange rate rising rapidly. This destroyed the domestic industry, and the economy is unlikely to re-obtain its competitive edge.
In the 1970’s Switzerland used negative interest rates as a dissuader to prevent the capital from flooding as investors looked for a safe haven from global inflation.
Although the concept of negative interest rates shouldn’t be seen as a burden for the economy, the concept originally thought up by Silvio Gesell, the main intention is to stimulate consumer spending and because it costs money to save money this ideal is achieved and the economy benefits from this.
So to conclude I strongly recommend use of negative interest rates within the UK economy, it would ultimately speed up our economic