Issue link: https://viewer.e-digitaledition.com/i/658306
IN A SHOW OF ECONOMIC DESPER ATION IN OVERSE A S MARKE TS, GOVERNMENTS ARE LOWERING INTEREST R ATES BELOW ZERO PERCENT AND SIMIL ARLY ISSUING BONDS WITH NEGATIVE INTEREST R ATES. IT'S A HE AD¢SCR ATCHING PHENOMENON, E VEN FOR THOSE OF US WHO WORK IN THE OF TEN¢COMPLE X WORLD OF FINANCE AND ECONOMICS. WHY WOULD ANYONE WILLINGLY SIGN UP FOR A GUAR ANTEED LOSS WHEN INVESTING OR LENDING MONE Y? in Global Markets 1 0❱❱❱❱❱ S P E C I A L F E A T U R E BY BILL STRAND, FOUNDER AND PRINCIPAL OF PARADIGM: STRATEGIES IN WEALTH MANAGEMENT FOR THE PA ST year and a half, the European Central Bank has been o™ering sub-zero rates to its member banks, charging, instead of paying, 0.3 percent for holding cash overnight. The Central Bank of Sweden is doing the same thing, leading the world in negative deposit rates at -1.1 percent. The central banks of Switzerland (-0.75 percent) and Denmark (-0.65 percent) also charge their banks for keeping money on deposit. This unusual international trend, which has been proliferating quietly throughout Europe, became headline news last month when the Bank of Japan, the Japanese equivalent of the Federal Reserve, announced that, starting Feb. 16, it would pay -0.1 percent to Japan's lending institutions on all new money deposited into central bank reserve accounts. Why would any investor, especially a bank, willingly sign up for a guaranteed loss? And why are governments in the eurozone and in Japan experimenting with a concept that seems to run counter to the fundamental principles of invest- ment theory? Following the economic collapse in 2009, many countries instituted a policy known as quantitative easing, in which central bankers buy bonds from member banks as a means of cash injection. This helped stabilize the banks globally and helped stimulate fa ltering economies. With more cash on their ba lance sheets, banks were able to loan more money to consumers, thus helping to increase consumer demand for goods and services. Over time however, the impact of such quantitative easing was diminished, DESPERATE TIMES CALL FOR DESPERATE MEASURES: Negative Interest Rates Making Sense of 1 0