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Finance and Credit
 

Negative interest rates as a consequence of the transformation of monetary arrangements in modern economy: A literature review

Vol. 26, Iss. 4, APRIL 2020

PDF  Article PDF Version

Received: 17 February 2020

Received in revised form: 10 March 2020

Accepted: 25 March 2020

Available online: 28 April 2020

Subject Heading: MONETARY ACCOMMODATION

JEL Classification: E41, E43, E51, E52

Pages: 856–873

https://doi.org/10.24891/fc.26.4.856

Burlachkov V.K. Moscow State Institute of International Relations (University) of Ministry of Foreign Affairs of Russian Federation (MGIMO University), Moscow, Russian Federation
vkburl@gmail.com

https://orcid.org/0000-0003-3206-1564

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.

Keywords: negative interest rate, money creation, money supply, lending

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