Editing Interest rate (section)

==Negative nominal or real rates{{anchor|Negative interest rates}}==
''Nominal'' interest rates are normally positive, but not always. In contrast, ''real'' interest rates can be negative, when nominal interest rates are below inflation. When this is done via government policy (for example, via reserve requirements), this is deemed [[financial repression]], and was practiced by countries such as the United States and United Kingdom [[Aftermath of World War II|following World War II]] (from 1945) until the late 1970s or early 1980s (during and following the [[Post–World War II economic expansion]]).<ref>{{cite web|url=http://www.pimco.com/EN/Insights/Pages/The-Caine-Mutiny-Part-2.aspx|title=The Caine Mutiny Part 2 – PIMCO|author=William H. Gross|work=Pacific Investment Management Company LLC|access-date=2011-12-21|archive-date=2012-10-13|archive-url=https://web.archive.org/web/20121013181717/http://www.pimco.com/EN/Insights/Pages/The-Caine-Mutiny-Part-2.aspx|url-status=dead}}</ref><ref>{{cite web|url=http://www.imf.org/external/pubs/ft/fandd/2011/06/pdf/reinhart.pdf|title=Financial Repression Redux (Reinhart, Kirkegaard, Sbrancia June 2011)|website=Imf.org|access-date=8 January 2018}}</ref> In the late 1970s, [[United States Treasury security|United States Treasury securities]] with negative real interest rates were deemed {{anchor|certificate of confiscation}}''certificates of confiscation''.<ref>{{Cite news | last = Norris | first = Floyd | title = U.S. Bonds That Could Return Less Than Their Price |newspaper= [[The New York Times]] |date=28 October 2010 |url= https://www.nytimes.com/2010/10/29/business/economy/29norris.html}}</ref>

===On central bank reserves===
{{Main|Negative interest on excess reserves}}
A so-called "negative interest rate policy" (NIRP) is a negative (below zero) central bank target interest rate.

====Theory====
{{Main|Demurrage currency}}
Given the alternative of holding cash, and thus earning 0%, rather than lending it out, profit-seeking lenders will not lend below 0%, as that will guarantee a loss, and a bank offering a negative deposit rate will find few takers, as savers will instead hold cash.<ref>{{cite news |url= http://blogs.ft.com/maverecon/2009/05/negative-interest-rates-when-are-they-coming-to-a-central-bank-near-you/
|title=Negative interest rates: when are they coming to a central bank near you?
|date=7 May 2009
|first=Willem
|last=Buiter
|author-link=Willem Buiter
|work=[[Financial Times]] blog
}}</ref>

Negative interest rates have been proposed in the past, notably in the late 19th century by [[Silvio Gesell]].<ref name="mankiw">{{Cite news |url= https://www.nytimes.com/2009/04/19/business/economy/19view.html |title=It May Be Time for the Fed to Go Negative |work=The New York Times |first=N. Gregory |last=Mankiw |author-link=N. Gregory Mankiw |date=18 April 2009}}</ref> A negative interest rate can be described (as by Gesell) as a "tax on holding money"; he proposed it as the ''[[Demurrage currency|Freigeld]]'' (free money) component of his {{Lang|de|[[Freiwirtschaft]]}} (free economy) system. To prevent people from holding cash (and thus earning 0%), Gesell suggested issuing money for a limited duration, after which it must be exchanged for new bills; attempts to hold money thus result in it expiring and becoming worthless. Along similar lines, [[John Maynard Keynes]] approvingly cited the idea of a carrying tax on money,<ref name="mankiw" /> (1936, ''[[The General Theory of Employment, Interest and Money]]'') but dismissed it due to administrative difficulties.<ref name="wired">{{Cite magazine |title = Cash and the 'Carry Tax' |first = Declan |last = McCullagh |magazine = WIRED |access-date = 2011-12-21 |url = https://www.wired.com/politics/law/news/1999/10/32121 |archive-url=https://web.archive.org/web/20080617034453/https://www.wired.com/politics/law/news/1999/10/32121 |archive-date=17 June 2008 |date=27 October 1999}}</ref> More recently, a carry tax on currency was proposed by a [[Federal Reserve]] employee (Marvin Goodfriend) in 1999, to be implemented via magnetic strips on bills, deducting the carry tax upon deposit, the tax being based on how long the bill had been held.<ref name="wired" />

It has been proposed that a negative interest rate can in principle be levied on existing paper currency via a [[serial number]] lottery, such as randomly choosing a number 0 through 9 and declaring that notes whose serial number end in that digit are worthless, yielding an average 10% loss of paper cash holdings to hoarders; a drawn two-digit number could match the last two digits on the note for a 1% loss. This was proposed by an anonymous student of [[Greg Mankiw]],<ref name="mankiw" /> though more as a thought experiment than a genuine proposal.<ref>

See follow-up blog posts for discussion: "[http://gregmankiw.blogspot.com/2009/04/observations-on-negative-interest-rates.html Observations on Negative Interest Rates]", 19 April 2009;
"[http://gregmankiw.blogspot.com/2009/04/more-on-negative-interest-rates.html More on Negative Interest Rates]", 22 April 2009; "[http://gregmankiw.blogspot.com/2009/05/more-on-negative-interest-rates.html More on Negative Interest Rates]", 7 May 2009, all in [http://gregmankiw.blogspot.com/ Greg Mankiw's Blog: Random Observations for Students of Economics]</ref>

====Practice====
Both the [[European Central Bank]] starting in 2014 and the [[Bank of Japan]] starting in early 2016 pursued the policy on top of their earlier and continuing [[quantitative easing]] policies. The latter's policy was said at its inception to be trying to "change Japan's 'deflationary mindset.'" In 2016 [[#Negative interest on central bank reserves|Sweden, Denmark]] and Switzerland—not directly participants in the [[Euro]] currency zone—also had NIRPs in place.<ref>Nakamichi, Takashi, Megumi Fujikawa and Eleanor Warnock, [https://www.wsj.com/articles/bbank-of-japan-introduces-negative-interest-rates-1454040311 "Bank of Japan Introduces Negative Interest Rates" (possibly subscription-only)]{{Dead link|date=October 2022 |bot=InternetArchiveBot |fix-attempted=yes }}, Wall Street ''Journal'', January 29, 2016. Retrieved 2016-01-29.</ref>

Countries such as Sweden and Denmark have set negative interest on reserves—that is to say, they have charged interest on reserves.<ref>{{cite journal|last=Goodhart|first=C.A.E.|title=The Potential Instruments of Monetary Policy|date=January 2013|journal=Financial Markets Group Paper|issue=Special Paper 219|url=http://www2.lse.ac.uk/fmg/workingPapers/specialPapers/PDF/SP219.pdf|access-date=13 April 2013|at=9–10|publisher=London School of Economics|issn=1359-9151}}</ref><ref>{{cite journal|last=Blinder|first=Alan S.|title=Revisiting Monetary Policy in a Low-Inflation and Low-Utilization Environment|journal=Journal of Money, Credit and Banking|date=February 2012|volume=44|issue=Supplement s1|pages=141–146|doi=10.1111/j.1538-4616.2011.00481.x}}</ref><ref>{{cite web|last=Thoma|first=Mark|title=Would Lowering the Interest Rate on Excess Reserves Stimulate the Economy?|url=http://economistsview.typepad.com/economistsview/2012/08/would-lowering-the-interest-rate-on-excess-reserves-stimulate-the-economy.html|work=Economist's View|access-date=13 April 2013|date=August 27, 2012}}</ref><ref>{{cite web|last=Parameswaran|first=Ashwin|title=On The Folly of Inflation Targeting In A World Of Interest Bearing Money|url=http://www.macroresilience.com/2013/01/07/on-the-folly-of-inflation-targeting-in-a-world-of-interest-bearing-money/|work=Macroeconomic Resilience|access-date=13 April 2013|date=2013-01-07}}</ref>

In July 2009, Sweden's central bank, the [[Riksbank]], set its policy repo rate, the interest rate on its one-week deposit facility, at 0.25%, at the same time as setting its overnight deposit rate at −0.25%.<ref name="sweden-negative-repo-table">{{Cite web|url = http://www.riksbank.se/en/Interest-and-exchange-rates/Repo-rate-table/|title = Repo rate table|access-date = 21 August 2013|publisher = Sveriges Riksbank|archive-url = https://web.archive.org/web/20130205235742/http://www.riksbank.se/en/Interest-and-exchange-rates/Repo-rate-table/|archive-date = 5 February 2013|url-status = dead}}</ref> The existence of the negative overnight deposit rate was a technical consequence of the fact that overnight deposit rates are generally set at 0.5% below or 0.75% below the policy rate.<ref name="sweden-negative-repo-table" /><ref name=":0">{{Cite news |url= http://www.ft.com/cms/s/0/5d3f0692-9334-11de-b146-00144feabdc0.html |archive-url=https://ghostarchive.org/archive/20221210/http://www.ft.com/cms/s/0/5d3f0692-9334-11de-b146-00144feabdc0.html |archive-date=2022-12-10 |url-access=subscription |title=Bankers watch as Sweden goes negative |first1=Andrew |last1=Ward |first2=David |last2=Oakley |work=[[Financial Times]] |location =London |date=27 August 2009}}</ref> The Riksbank studied the impact of these changes and stated in a commentary report<ref>{{Cite web|url = http://www.riksbank.se/upload/Dokument_riksbank/Kat_publicerat/Ekonomiska%20kommentarer/2009/ek_kom_no11_09eng.pdf|title = The lower limit of the Riksbank's repo rate|date = 30 September 2009|publisher = Sveriges Riksbank|access-date = 21 August 2013|last1 = Beechey|first1 = Meredith|last2 = Elmér|first2 = Heidi}}</ref> that they led to no disruptions in Swedish financial markets.

===On government bond yields===
[[File:Ireland bond prices.webp|thumb|300px|Ireland bond prices, [[Inverted yield curve]] in 2011,<ref>[https://www.researchgate.net/figure/a-Irish-yield-curve-dynamics-around-2011-loan-amendments-b-Portuguese-yield-curve_fig2_342609297 Figure. Irish yield curve]</ref> And rates went negative after the [[European debt crisis]].
{{legend-line|#FF8200 solid 3px|15 year bond}}
{{legend-line|#009A44 solid 3px|10 year bond}}
{{legend-line|#88FA4E solid 3px|5 year bond}}
{{legend-line|#970E53 solid 3px|3 year bond}}
]]
During the [[European debt crisis]], government bonds of some countries (Switzerland, Denmark, Germany, Finland, the Netherlands and Austria) have been sold at negative yields. Suggested explanations include desire for safety and protection against the eurozone breaking up (in which case some eurozone countries might redenominate their debt into a stronger currency).<ref>{{cite news
|url=http://www.ft.com/intl/cms/s/0/bd22fe1c-d0f1-11e1-8957-00144feabdc0.html#axzz22TvqCmZa
|archive-url=https://ghostarchive.org/archive/20221210221256/https://www.ft.com/content/bd22fe1c-d0f1-11e1-8957-00144feabdc0#axzz22TvqCmZa
|archive-date=2022-12-10
|url-access=subscription
|url-status=live
|title=Schatz yields turn negative for first time
|date=18 July 2012
|first=Robin
|last=Wigglesworth
|work=[[Financial Times]]
|location=London
|access-date=2012-08-03
}}</ref>

===On corporate bond yields===

For practical purposes, [[Investor|investors]] and academics typically view the yields on government or quasi-government bonds guaranteed by a small number of the most creditworthy governments (United Kingdom, United States, Switzerland, EU, Japan) to effectively have negligible default risk. As financial theory would predict, investors and academics typically do not view non-government guaranteed corporate bonds in the same way. Most credit analysts value them at a spread to similar government bonds with similar duration, geographic exposure, and currency exposure. Through 2018 there have only been a few of these corporate bonds that have traded at negative nominal interest rates.
The most notable example of this was Nestle, some of whose AAA-rated bonds traded at negative nominal interest rate in 2015. However, some academics and investors believe this may have been influenced by volatility in the currency market during this period.