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Negative like Sweden? The case for #NIR

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I’ve always wanted to visit Sweden, during the coronavirus outbreak Sweden has been one of the only places in Europe that have actually managed to keep all the pubs open! Albeit the jury is out as to whether or not Sweden has survived the outbreak, Sweden is a country that keeps bobbing up to the surface:

We could have written about the buzzing online gaming scene in Sweden, we could have even written about their push to have a cashless society, in fact there is a whole load of things we could have written about. But today, Sweden is also famous for being the first country in the world to implement Negative Interest Rates #NIR (another hashtag brought to you by #DisruptionBanking), having done so back in 2009!

Who is the Head of the Swedish Central Bank then and what is going on with their monetary policy? Some of you may not know that Stefan Ingves, who currently holds the privilege of steering Sweden through the next crisis was also for a time the Chairman of the Basel Committee on Banking Supervision from 2011 – 2019 after he had already implemented #NIR into Swedish Monetary Policy. Surprised? Well, the story only gets more interesting as you consider all the arguments for and against the concept of #NIR

Some have gone further than weighing up the pros and cons of #NIR by stating that the only reason that countries like Denmark, Sweden, Japan, Switzerland and the Eurozone itself are able to have negative interest rates is because the dollar isn’t pegged against a negative interest rate…. Jim Bianco tells CNBC that European currencies are able to maintain negative interest rates mainly because the reserve currency (USD) has positive interest rates… Some might say that his comments were mildly disruptive, especially when it comes to his opinions about European banks:

Of course, the truth is usually somewhere in the middle. And whilst the majority of us consumers don’t have much say on monetary policy, there are still a lot of analysts and economists across the globe who will be watching what Andrew Bailey at the Bank of England will decide to do, so far, if you can say anything about Andrew Bailey it is that he is neither a disruptor, nor particularly disruptive.

So far we have established that Stefan Ingves is a disruptor, having led the global banking industry into accepting the notion of negative interest rates. It could also be said that Jim Bianco’s criticism of negative interest rates is mildly disruptive, and finally that Andrew Bailey is probably both less radical and more diplomatic than many in this market.

So #DisruptionBanking considered the viewpoints of other Influential economists who work for the largest banks across the globe and how they saw the concept of negative interest rates

Let’s start with the main man, Donald Trump, who as always has an opinion on everything and usually is the best at having that opinion too. Trump’s personal war with the “Fed” has been going on for a while now, especially since the Federal Reserve raised interest rates a bit too quickly for Trump’s liking back in 2019. Perhaps it is another one of his amazing ideas like drinking bleach, but maybe he really is onto something by pressing for the Fed to consider #NIR:

Iris Pang, Chief Economist for Greater China at ING states that #NIR is unlikely to fuel inflation, so probably not beneficial in the long run.

Paul Donovan, Global Chief Economist at UBS who runs a Hashtag called #EconomicsWithoutJargon works for a Swiss bank which operates for quite some time in a negative interest rate country. Paul hit the headlines in late 2019 when his comments about Chinese Pigs caused him to be suspended by the Swiss Wealth Manager.  

Mainly the Chief Economists of Global Banks have remained a little tight-lipped about whether or not #NIR is a good thing or a bad thing. And in case anyone wanted to know why the Economists are being so quiet, we are fortunate enough to present the European economists response to the crisis:

Back in February 2020 the FT published a few words about Sweden’s Riksbank, the world’s oldest central bank, and how it had ended its’ experiment of five years with #NIR to return to zero in December 2019. Stefan Ingves is quoted here as championing the effects of #NIR, whilst others suggest that perhaps sooner or later we will have to pay for the experiment of artificially creating negative rates.

David Folkerts-Landau, Chief Economist of Deutsche Bank has traditionally been a sceptic of #NIR, back in 2019 going so far as to say that it could be seen as a way of delaying much needed reforms. 

Andrew Sentance, Senior Advisor from Cambridge Econometrics has noted that during the Financial Crisis the Bank of England had never dropped below 0.25% on the interest rate, but that it had moved to 0.1% to stem the affects of the pandemic on the UK economy. Dropping to below this level could see increased customer concerns about the health of the UK banking system which may in fact have an unexpected affect on inflation and consumer spending. The British are not as similar to the Swedish or the Swiss as one would like to believe.

While Jan Hatzius of Goldman Sachs as well as a good few other Chief Economists, is very complimentary of the speed of action by policy makers, going so far as to call them “Activist” and agreeing that the stimulus packages for Small Medium Enterprises has exceeded expectations. The same can be said of many economists when it comes to the UK’s response.

So if the response was so good from policy makers and probably not much more can be expected, then surely we don’t NEED #NIR? Perhaps the decision will be made when Andrew Bailey finally decides how low he must go in order to stave away a Rainy Day, and the signs are “disruptive”. If you want to know more, grab the nearest Swede and find out exactly whether they think #NIR is really only for treating sick economies, or whether it has any other lasting benefits to an economy.

Author: Andy Samu