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Digital Subscriptions > The Hedge Fund Journal > Issue 116 - September 2016 > Negative Rates

Negative Rates

Not needed, not helpful

Negative rates are a central banking idea based on a poorly conceived and constructed linear view of the efficacy of monetary policy. They do not work to encourage either economic growth or inflation. And, it is very likely that over the next six to 12 months, as evidence of their failure grows, bankers at the European Central Bank (ECB) and Bank of Japan (BoJ) may try to find graceful ways to back away from negative rates, and instead embrace a view of linking monetary policy to more stimulative fiscal policies to encourage economic growth and inflation.

Negative rate policies were first introduced in Switzerland and Sweden, aimed at keeping their currencies from rising relative to the euro since the eurozone was their key trading partner and the strength of their currencies was perceived as an impediment to their exports. Sweden and Switzerland are relatively small countries, and the negative rates, effectively a penalty on holding their currency instead of their trading partners’, had some limited success on the currency front, but had little to no impact on economic growth or inflation.

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INFORMING THE HEDGE FUND COMMUNITY With access to some of the industry’s biggest names and an astute and talented group of writers and contributors, The Hedge Fund Journal has established itself as a trusted source of information on the hedge fund industry.
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