By James Saft
(Reuters) – It may be better to think of the outbreak of negative interest rates as simply another weapon in an ongoing and global low-grade currency war.
It’s not that negative interest rates – under which investors pay for the privilege of lending money – are not driven partly by terrible growth prospects and a rising threat of deflation.
They are, but they are also the manifestation of monetary policy that says, in essence, to global investors: “don’t let the door hit you on the way out.”
That’s because a central bank which is desperately looking for growth – and that means just about all of them – would like nothing more than to see its currency depreciate.
The European Central Bank is the latest to light the negative interest rate fuse, cutting key rates last week by 25 basis points to 0.75 percent. This gave rise to what has to be the 8th wonder of the financial crisis – the spectacle of France raising short-term money at negative interest rates. Germany and the Netherlands are also able to sell debt at negative yields, while Danish banks will end up owing their central bank hundreds of millions annually after their central bank cut a certificate of deposit rate to -0.20 percent.