The negative interest rates were a fatal breach of a taboo by the central banks



Negative interest rates: A breaking of a taboo by the central banks with serious consequences

The economic absurdity lives on at the moment only in Japan. But the supposed miracle weapon of monetary policy has now been invented and will therefore be used again in the future.

Until ten years ago, interest rates below the zero line were taboo. Then came the debt crisis in the eurozone. The ECB President at the time, Mario Draghi, promised and did what he would do “whatever it takes”, hoping that the players on the financial markets would soon stop betting on a rapid drifting apart between North and South.

In 2012, Denmark was the first central bank to dare to break the taboo. Since the introduction of the euro, the Danish currency has been so closely linked to the common currency that it no longer has a life of its own. But during the debt crisis, investors even rediscovered the krone as an object of speculation. Two years later, the economy in the southern EU countries was worse than planned. That was the time when the ECB also resorted to negative interest rates.

In January 2015, the National Bank followed suit – nolens volens. There was no other way she could have stopped a fatal appreciation of the Swiss franc, says her boss Thomas Jordan, noting: “Overall, the negative interest rate has proven its worth”. He may be right, but that doesn’t change the problem. The eurozone is almost back to where it was in 2012. Japan has not made any progress with negative interest rates either. Nevertheless, the central banks will use the new miracle weapon again, with fewer concerns than the first time – although the harmful side effects have now been proven and are significant. The negative long-term consequences of breaking the taboo will one day fall back on the central banks themselves.

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