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Swiss National Bank to Adopt a Negative Interest Rate

OWoN: The US WILL grab funds for sure. Once the Global reality of their gross insolvency hits funds will flood out. Also they will introduce Exchange Control and your dead meat.

With BRICS and the coming Gold backed Yuan, plus collapsing oil prices, the US will tail spin. They either mass sack the Agencies and close the 900 Global bases, plus deal with Illegals, or sink. They won't, so in stages, they will choke.

Even Switzerland is starting.

Here it comes. Now watch how fast money bails out to new safe harbors.




Swiss National Bank to Adopt a Negative Interest Rate


The New York Times
By David Jolly
18 December 2014

Paris — Switzerland is introducing a negative interest rate on deposits held by lenders at its central bank, moving to hold down the value of the Swiss franc amid turmoil in global currency markets and expectations that deflation is at hand.

The Swiss National Bank said in a statement from Zurich on Thursday that it would begin charging banks 0.25 percent interest on bank deposits exceeding a certain threshold, effective Jan. 22.

The bank acted as the crisis in Russia and plummeting oil prices have caused a run on emerging market currencies. Switzerland, known for its fiscal rectitude and banking secrecy, tends to attract capital inflows as money flees chaos elsewhere. But that puts pressure on the franc, threatening to make exporters less competitive and raising the risk that very low price pressures will tip the economy into outright deflation.

“Over the past few days, a number of factors have prompted increased demand for safe investments,” the central bank said. “The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate.”

In September 2011, with the eurozone’s sovereign debt crisis in full swing, the central bank announced a policy of restraining the franc’s value to no less than 1.2 francs per euro, and said it was “prepared to buy foreign currency in unlimited quantities” to defend that level. It said on Thursday that it remained committed to enforcing that policy “with the utmost determination.”

The franc, which had been creeping toward the central bank’s limit on the currency, retreated modestly. The euro rose 0.3 percent to 1.2046 while the dollar rose 0.8 percent to 0.9805 francs.

Analysts were skeptical that the new policy would significantly reduce demand for Swiss assets while emerging markets were in turmoil.

“It’s an external factor that has precipitated them to take this action,” said Derek Halpenny, the European head of global markets research at Bank of Tokyo-Mitsubishi UFJ in London. “Is a negative interest rate going to solve their problem? I don’t think so.”

Still, Mr. Halpenny said, it was “a 100 percent certainty” that the Swiss National Bank’s 1.2-franc line in the sand would hold for as long as the central bank was willing to vacuum up as many euros as needed. The central bank maintains that floor by selling francs on the open market in exchange for euros, pushing down the franc and supporting the euro.

Since 2009, Mr. Halpenny noted, the central bank has quintupled its foreign currency holdings to 470 billion francs, as it intervened to hold down the franc.

The central bank said the new policy was meant to push its key interest rate — the three-month London interbank offered rate for Swiss franc loans between banks — below zero. Doing so would tend to make short-term Swiss assets like franc-denominated money market funds and debt securities less attractive. The policy, which is not aimed at individuals, affects only financial institutions on the portion of their deposits over 10 million francs, or $10.2 million.

Thomas J. Jordan, governor of the Swiss central bank, told a news conference in Zurich on Thursday that the effect on the rates paid on individual savers’ accounts by banks was beyond the central bank’s responsibility, but that the move was “no different from any other interest rate cuts by a central bank.”

The interest rates paid to savers in Switzerland are already extremely low, so there is little room for lenders to cut further.

In putting in place the negative rate, in essence a tax on excess deposits, the Swiss monetary authority joins the European Central Bank, which introduced its own negative 0.1 percent deposit rate in June, and then changed that to minus 0.2 percent in September.

The European Central Bank action was aimed at a different problem: the failure of eurozone banks to increase lending to businesses, one of the factors that is holding back growth in the region. So far, the action has not borne fruit, and lending has continued to contract.

For the Swiss central bank, which seeks to hold inflation at the consumer level to less than 2 percent, fears that an overvalued franc will choke growth and stoke deflation are real. Swiss consumer prices declined by 0.1 percent in November from a year earlier, the Federal Statistical Office reported on Dec. 8. The Swiss central bank said on Wednesday that it expected prices to be unchanged over all in 2014 and that next year, prices would contract 0.1 percent, slipping into outright deflation.

Deflation hurts borrowers by increasing the burden of loan repayments in real terms, the last thing central bankers want when the financial system has not fully recovered from the global credit crisis. Falling prices also hurt the economy by reducing investment and consumption, and the monetary tools for addressing it are limited. But even ultralow inflation as is being experienced in the neighboring eurozone is hinders growth.

Short-term interest rates, the main lever for monetary policy in normal times, have been cut to rock-bottom levels across the developed world, and nominal rates cannot go below zero. That has led central bankers to try unorthodox measures, including charging banks to hold deposits and so-called quantitative easing, purchasing bonds on a vast scale to increase liquidity.

The Federal Reserve cut its target for the federal funds rate, the rate that banks charge one another for overnight loans, to near zero on Dec. 16, 2008. At a news conference in Washington on Wednesday, Janet L. Yellen, the Fed chairwoman, said that she expected to raise that rate sometime next year, but that the bank’s policy board would be “patient.”

Forecasts that rates would rise from near zero have been proved wrong for six years running, as the global financial system remained fragile and growth failed to reach pre-crisis momentum.

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5 comments :

  1. John,

    Is the gold backed yuan the end goal or is that the fallback? How does that play out?

    ReplyDelete
  2. It appears that China is not the only country getting ready to pop out gold backed currency.

    http://www.thetelescopenews.com/zimbabwe-news/5916-zimbabwe-prints-new-currency-to-be-issued-at-a-moments-notice.html

    ReplyDelete
    Replies
    1. I doubt the gooroos will be letting that cat out the bag. Wha? You said the ZIM was going to revalue? Sure, but they won't be exchanging those old notes. It looks like ZIM only has about 500M reserves including gold. With a current GDP of 13B, 40B in M1 is needed. So it would be, conservatively, 1/80th gold backed if all its reserves were in gold (which they are not). So what is the benefit of backing your currency with 1% or less of Au? Something's not right here.

      Delete
    2. Shell games. They will probably use forward valuing. Use the next 20 years gold output of the country's mining industry or some other shenanigans like this is my guess, fwiw....

      Delete
  3. " Also they will introduce Exchange Control and your dead meat. "

    Can you explain what EXCHANGE CONTROL is and what it will mean? thnx. ~darylluke.

    ReplyDelete

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