Deutsche Skatbank, a division of VR-Bank Altenburger Land, is introducing negative interest rates. Customers with over €500,000 on deposit as of November 1 will earn a “negative interest rate” of 0.25%. In other words, instead of earning positive interest, they will have to pay 0.25% per year for banking services.
"'Punishment Interest' is what Germans lovingly call this. It’s the latest and most blatant step of the central-bank strategy to confiscate in bits and pieces and over time the wealth that prudent people and businesses have accumulated, and that should have re-entered the economy via the intermediation of the banks."
Banking as a Service to Be Paid For
If you must pay the bank for holding your money, why don't you just keep the money in a safe at home, or hide it under the mattress? One argument is that the money is safer in the bank, and bank-grade security is what you pay for.
The usual banking business model is to loan out the deposits of the clients. The bank makes money by charging interest on the loans, and the clients are motivated to deposit by receiving interest higher than the inflation rate. A positive nominal interest lower than inflation is a negative real interest.
The initiative of Deutsche Skatbank, which may well be followed by other banks in Germany and abroad, seems to prepare the way for a new concept of banking as a service to be paid for.
That seems outrageous at first, so it's worth also looking at the positive side. First, banks wouldn't depend only on the repayment of their loans, so they would be encouraged to loan more money out, for example to house owners small business start-ups (two categories that find more and more difficult to borrow money from banks). Second, negative interest rates would discourage the accumulation of idle wealth, and encourage putting unused money back in circulation to stimulate the economy. This is an effect that the traditional mildly inflationary monetary policies, suggested by Keynes, are designed to achieve.
It's to be expected, however, that if the concept of banking as a service to be paid for takes hold, more and more people will "hide their money under the mattress" with the new means provided by modern technology. If some basic security measures are taken, everyone can store value safely in Bitcoin, for example in cold storage, out of the reach of both thieves and tax authorities, and without needing external banking services.
What do you think of negative interest rates and their impact on the Bitcoin economy? Comment below!
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