Finance and Credit

Abstracting and Indexing

Referativny Zhurnal VINITI RAS
LCCN Permalink
Google Scholar

Online available



Cyberleninka (24 month OA embargo)

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


JEL Classification: E41, E43, E51, E52

Pages: 856–873

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

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


  1. 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
  2. Bindseil U. The Operational Target of Monetary Policy and the Rise and Fall of Reserve Doctrine. European Central Bank Working Paper Series, 2004, no. 372, 44 p.
  3. 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
  4. 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
  5. 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
  6. Bernhardsen T., Kloster A. Misunderstood Central Bank Reserves. Norges Bank Economic Commentaries, 2012, no. 1. URL: Link
  7. Benes J., Kumhof M. The Chicago Plan Revised. IMF Working Paper, 2012, no. WP/12/202. URL: Link
  8. Andresen T. Basel Rules, Endogenous Money Growth, Financial Accumulation and Debt Crisis. PKES Working Paper, 2009, no. 0902. URL: Link
  9. Meggyesi P. Reflections on negative interest rates in Switzerland. URL: Link
  10. Mishkin F.S. The Economics of Money, Banking, and Financial Markets. 11th ed. New York, NY, Pearson, 2015, 704 p.
  11. 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
  12. Botos K. Money Creation in the Modern Economy. Public Finance Quarterly, 2016, vol. 61, iss. 4, pp. 442–457. URL: Link
  13. Borio C., Disyatat P. Unconventional Monetary Policies: An Appraisal. BIS Working Papers, 2009, vol. 292, 36 p. URL: Link
  14. 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
  15. Bech M., Malkhozov A. How Have Central Banks Implemented Negative Policy Rates? BIS Quarterly Review, 2016, iss. 3, pp. 31–44. URL: Link
  16. 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
  17. 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
  18. 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
  19. 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
  20. 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
  21. 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
  22. 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
  23. 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

View all articles of issue


ISSN 2311-8709 (Online)
ISSN 2071-4688 (Print)

Journal current issue

Vol. 26, Iss. 5
May 2020