Subject. The article considers negative interest rates applied by both central and commercial banks on deposits and loans under conditions of significant changes in monetary arrangements of the modern economy. Currently, the number of central and commercial banks using such interest rates tends to increase. Objectives. The aim is to review theoretical and practical scientific studies on identifying the root causes of using the negative interest rates and the implications of this practice in the modern economy. Methods. The study involves methods of induction, deduction, synthesis, and comparative analysis. Results. The application of negative interest rates by central banks is aimed at stimulating the use of money (the banking sector liquidity) in central banks’ payment systems. The application of negative rates by commercial banks is related to the absence of commercial banks’ interest in using the deposits of business entities in conditions when the volumes of bank lending are restricted by Basel standards, i.e. by the Capital to Risk (Weighted) Assets Ratio (CRAR). Conclusions. Using the negative interest rates due to the specifics of the modern monetary arrangements cannot be characterized as an effective instrument of modern monetary policy implementation. Refusal to apply negative interest rates practices should be supported by effective coordination between the central bank money (the banking sector liquidity) and M1 money supply, which is formed as result of commercial banks’ credit transactions.
Bindseil U., Camba-Mendez G., Hirsch A., Weller B. Excess Reserves and the Implementation of Monetary Policy of the ECB. Journal of Policy Modeling, 2006, vol. 28, iss. 5, pp. 491–510. URL: Link
Bindseil U. The Operational Target of Monetary Policy and the Rise and Fall of Reserve Doctrine. European Central BankWorking Paper Series, 2004, no. 372, 44 p.
Carpenter S., Demiralp S. Money, Reserves and the Transmission of Monetary Policy: Does the Money Multiplier Exist? Journal of Macroeconomics, 2012, vol. 34, iss. 1, pp. 59–75. URL: Link
McLeay M., Radia A., Thomas R. Money Creation in the Modern Economy. Bank of England Quarterly Bulletin, 2014 Q1, vol. 54, iss. 1, pp. 14–27. URL: Link
Jakab Z., Kumhof M. Banks Are Not Intermediaries of Loanable Funds – And Why This Mattes. Bank of England Working Paper, 2015, no. 529. URL: Link
Bernhardsen T., Kloster A. Misunderstood Central Bank Reserves. Norges Bank Economic Commentaries, 2012, no. 1. URL: Link
Benes J., Kumhof M. The Chicago Plan Revised. IMF Working Paper, 2012, no. WP/12/202. URL: Link
Andresen T. Basel Rules, Endogenous Money Growth, Financial Accumulation and Debt Crisis. PKES Working Paper, 2009, no. 0902. URL: Link
Meggyesi P. Reflections on negative interest rates in Switzerland. URL: Link
Mishkin F.S. The Economics of Money, Banking, and Financial Markets. 11th ed. New York, NY, Pearson, 2015, 704 p.
Arteta C., Kose A.M., Stocker M., Taskin T. Negative Interest Rate Policies: Sources and Implications. World Bank Policy Research Working Paper, 2016, no. 7791. URL: Link
Botos K. Money Creation in the Modern Economy. Public Finance Quarterly, 2016, vol. 61, iss. 4, pp. 442–457. URL: Link
Borio C., Disyatat P. Unconventional Monetary Policies: An Appraisal. BIS Working Papers, 2009, vol. 292, 36 p. URL: Link
De Sola Perea M., Kasongo Kashama M. The Negative Interest Rate Policy in the Euro Area and the Supply of Bank Loans. NBB Economic Review, 2017, iss. 3, pp. 43–61. URL: Link
Bech M., Malkhozov A. How Have Central Banks Implemented Negative Policy Rates? BIS Quarterly Review, 2016, iss. 3, pp. 31–44. URL: Link
Borio C., Gambacorta L. Monetary Policy and Bank Lending in a Low Interest Rate Environment: Diminishing Effectiveness? Journal of Macroeconomics, 2017, vol. 54, part B, pp. 217–231. URL: Link
Demiralp S., Eisenschmidt J., Vlassopoulos T. Negative Interest Rates, Excess Liquidity and Retail Deposits: Banks' Reaction to Unconventional Monetary Policy in the Euro Area. ECB Working Paper Series, 2019, no. 2283. URL: Link
Danthine J.-P. Negative Interest Rates in Switzerland: What Have We Learned? Pacific Economic Review, 2018, vol. 23, iss. 1, pp. 43–50. URL: Link
Wanting Xiong, Yougui Wang. The Impact of Basel III on Money Creation: A Synthetic Analysis. Kiel Institute for the World Economy Economics Discussion Papers, 2017, no. 2017–2053. URL: Link
Boyao Li, Wanting Xiong, Liujun Chen, Yougui Wang. The Impact of the Liquidity Coverage Ratio on Money Creation: A Stock-Flow Based Dynamic Approach. Economic Modelling, 2017, vol. 67, pp. 193–202. URL: Link
Gambacorta L., Hyun Song Shin. Why Bank Capital Matters for Monetary Policy. Journal of Financial Intermediation, 2018, vol. 35, part B, pp. 17–29. URL: Link
Krishnamurthy A., Vissing-Jorgensen A. The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy. Brookings Papers on Economic Activity, 2011, no. 2, pp. 215–287. URL: Link
De Santis R.A., Holm-Hadulla F. Flow Effects of Central Bank Asset Purchases on Euro Area Sovereign Bond Yields: Evidence from Natural Experiment. European Central Bank Working Papers Series, 2017, vol. 2052, 31 p. URL: Link