Negative rates of central banks as a factor in the transformation of the global financial system in crisis anticipation

2020 ◽  
Vol 26 (2) ◽  
pp. 316-326
Author(s):  
M.Yu. Evsin ◽  
I.A. Rybina
Keyword(s):  
Interest Rates ◽  
Financial System ◽  
Central Banks ◽  
Gdp Growth ◽  
Emerging Trends ◽  
Negative Interest Rates ◽  
General Scientific ◽  
Implementation Of Monetary Policy ◽  
Instrumental Methods ◽  
Global Financial System

Subject. We consider the practice of applying negative interest rates by central banks of Switzerland, Sweden, Denmark, Japan and the Eurozone countries as a whole, and assess the effects of such policies. Objectives. The purpose is to review emerging trends in the global financial system regarding the formation of interest rates, and to study preconditions for the emergence prerequisites for emergence of a new financial crisis. Methods. The methodology involves correlation of inflation level, negative interest rates and GDP growth. We apply normative and integrated approaches to the study of interest rate formation by central banks at the present stage, general scientific and special methods of scientific knowledge, i.e. retrospective, systems and functional-structural analysis, observation; instrumental methods of grouping, sampling, comparison and generalization, evolutionary and dynamic analysis. Results. The main problem faced by central banks is the lack of effective tools. This gave rise to the transformation of views on formation and implementation of monetary policy and, as a consequence, the introduction of negative interest rates. We present a logical model for negative interest rates policy implementation. In the short term, such a policy can yield positive results (GDP growth), though by a insignificant amount. Conclusions and Relevance. The use of negative interest rates in the activities of world’s central banks is a serious prerequisite for crisis that can cause a transformation of the entire global financial system.

The $19,000 Question: How Will the Economic Consequences of the Coronavirus Pandemic Affect the Financial System?

2020 ◽  
Vol 1 (1) ◽  
Author(s):  
Howard Davies
Keyword(s):  
Interest Rates ◽  
Financial Services ◽  
Large Scale ◽  
Banking System ◽  
Financial System ◽  
Central Banks ◽  
Economic Consequences ◽  
The European Union ◽  
Negative Interest Rates ◽  
Capital Ratios

The deep recession expected as a result of the COVID-19 pandemic will leave both governments and private-sector companies with a greatly increased debt burden. That will have severe consequences for the financial system. Banks will suffer large-scale defaults on business and personal lending. To work off the debt overhang, interest rates may be held down by central banks for a long period. Inflation may rise, which would deflate the real value of debt, but inflationary pressures are currently weak. Financial repression will add to the pressures on banks and other financial institutions. Major banks enter the crisis period with high capital ratios, but expected losses on loan portfolios will put some under strain. Less strongly capitalized new entrants may suffer disproportionately. Other likely changes are more rapid growth in digital financial services and a decline in cash usage. Central banks will probably issue their own digital currencies, which will make maintaining negative interest rates more achievable. At the same time, the international financial system will be put under strain by global tensions generated by the crisis. In this complex environment, it will be crucial for governments, central banks, and the banking system to collaborate closely and for the European Union to bolster the eurozone with long-planned but long-delayed reforms, in particular to promote a capital markets union that could relieve pressure on banks’ balance sheets.

Problems of Russia’s Integration into the Global Financial System

2015 ◽  
pp. 82-90
Author(s):  
A. Kuznetsov
Keyword(s):  
New York ◽  
Interest Rates ◽  
Financial Market ◽  
Low Income ◽  
Financial System ◽  
Developed Countries ◽  
The United States ◽  
International Investment ◽  
Short Period ◽  
Global Financial System

The author examines problems of Russia’s integration into the global financial system since early 1990s. During this short period of time Russia has turned from a net debtor into a net creditor. This is evidenced by its current net international investment position, as well as by active participation in the formation of credit resources of the key international financial institutions, particularly IMF. Still, the net investment income of Russia is negative. Such a disadvantage is explained by the difference in interest rates between payments of Russia on its external obligations and receipts as income from investments in foreign assets, mainly low-income bonds of developed countries, which form Russian international reserves. For three centuries the United Kingdom and the United States have been playing key role in the development of the global financial system. Today London and New York still operate nearly two thirds of the volume of global flows of capital in the international financial markets. Thus, as one of major economies in terms of GDP and as a resource-richest country of the world, Russia, as author argues, can rightfully claim for a more adequate share of income from the global financial intermediation. Obstacles include the lack of development of the domestic financial market and insufficient international demand for financial instruments denominated in Rubles. Russian Ruble remains a purely internal currency which practically is not used in the international trading and financial operations. At this stage, Russia’s inability to influence the basic conditions of refinancing on international capital markets, as well as the recent Western sanctions make impossible the full-scale participation of Russia in the processes of financial globalization. The author concludes that alternative way of Russia’s entry into the global financial system lays in playing the key role in the creation of the regional financial market of the Eurasian Economic Space.

scholarly journals Risks and the influence of negative interest rates on economic activity: a case study of Sweden, Denmark, and Switzerland

2020 ◽  
Vol 15 (1) ◽  
pp. 30-41
Author(s):  
Liběna Černohorská ◽  
Darina Kubicová
Keyword(s):  
Time Series ◽  
Interest Rates ◽  
Granger Causality ◽  
Economic Activity ◽  
Central Banks ◽  
Time Interval ◽  
Short Term ◽  
Stock Indices ◽  
Negative Interest Rates ◽  
The Impact

The purpose of this paper is to analyze the impact of negative interest rates on economic activity in a selected group of countries, in particular Sweden, Denmark, and Switzerland, for the period 2009–2018. The central banks of these countries were among the first to implement negative interest rates to revive the economic growth. Therefore, this study analyzed long- and short-term relationships between interest rates announced by central banks and gross domestic product and blue chip stock indices. Time series analysis was conducted using Engle-Granger cointegration analysis and Granger causality testing to identify long- and short-term relationship. The first step, using the Akaike criteria, was to determine the optimal delay of the entire time interval for the analyzed periods. Time series that seem to be stationary were excluded based on the results of the Dickey-Fuller test. Further testing continued with the Engle-Granger test if the conditions were met. It was designed to identify co-integration relationships that would show correlation between the selected variables. These tests showed that at a significance level of 0.05, there is no co-integration between any time series in the countries analyzed. On the basis of these analyses, it was determined that there were no long-term relationships between interest rates and GDP or stock indices for these countries during the monitored time period. Using Granger causality, the study only confirmed short-term relationship between interest rates and GDP for all examined countries, though not between interest rates and the stock indices. Acknowledgment The paper has been created with the financial support of The Czech Science Foundation GACR 18-05244S – Innovative Approaches to Credit Risk Management.

scholarly journals Macroeconomic Policy at a Crossroads

2021 ◽  
Vol 65 (7) ◽  
pp. 5-15
Author(s):  
A. Kholopov
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Interest Rates ◽  
Public Debt ◽  
Financial Stability ◽  
Macroeconomic Policy ◽  
Bank Lending ◽  
Central Banks ◽  
Fiscal Stimulus ◽  
Negative Interest Rates

The article examines macroeconomic policy options for advanced economies to respond to adverse shocks in the environment of very low interest rates and very high levels of public debt, when the scope for using conventional policy tools is limited. The standard transmission mechanism of monetary policy in the ELB conditions stops working normally, and the economy faces the “liquidity trap” effect. The deployment by central banks of unconventional monetary tools (forward guidance, quantitative easing, and negative interest rates) after global financial crisis was helpful in combatting the downturn, but carries risk of possible side effects. Large-scale purchases of financial assets lead to significant increase in central banks’ balance sheets, and this creates a threat to future financial stability and central bank independence. Negative interest rates can have detrimental effects on bank profitability and be contractionary through bank lending. There is a consensus that today fiscal policy has to play a major role in stabilizing the business cycle. But the effectiveness of conventional tools of discretional fiscal policy is uncertain because of long political lags and small spending multiplier. Existing automatic fiscal stabilizers are focused on social protection goals and not on macroeconomic stabilization. Thus, the newly proposed measures for rules-based fiscal stimulus (asymmetric semiautomatic stabilizers – tax or spending measures triggered by the crossing of some statistical threshold, e.g. a high unemployment rate) and unconventional fiscal policy (the use of consumption taxes to increase inflation expectations) have become the object of active discussion. Here lies the danger in the fusion of monetary and fiscal policy: central banks’ operations are becoming increasingly quasi-fiscal, aimed at financing budget deficit, and functions of monetary policy are proposed to assign to fiscal policy. Besides, the expansion of fiscal stimulus threatens financial stability in the future, as it leads to increase in public debt and narrows a country’s fiscal space.

Yen surge to question global monetary easing's effects

2016 ◽  
Keyword(s):  
Interest Rates ◽  
Central Banks ◽  
Recent Improvement ◽  
German Government ◽  
Monetary Policies ◽  
Government Bonds ◽  
Content Type ◽  
Negative Interest Rates ◽  
The Us ◽  
Fiscal Support

Significance Despite aggressive easing by both the Bank of Japan (BoJ) and the ECB, including negative interest rates, the lowering of expectations over the scale and pace of rate hikes by the US Federal Reserve (Fed) has negated their attempts to weaken their currencies and thus boost export-driven growth. This is heightening concern that ultra-loose monetary policies have passed the point where they can revive growth and inflation. Impacts Despite the recent improvement due to the oil price rebound since mid-February, sentiment towards EM currencies will remain fragile. The still strong demand for 'safe-haven' assets, such as German government bonds and gold, implies investors will remain cautious. Negative deposit rates will further undermine banks' earnings, amid persistent concerns about capital levels. Central banks will reach the limits of their capacity to promote growth without fiscal support from governments.

China’s monetary policy will rely on banks’ compliance

2019 ◽  
Keyword(s):  
Monetary Policy ◽  
Private Sector ◽  
Interest Rates ◽  
Financial System ◽  
Fourth Quarter ◽  
Gdp Growth ◽  
Private Firms ◽  
Content Type

Significance China’s GDP growth slowed to 6.4% year-on-year in the fourth quarter of 2018, with full-year growth at 6.6%. The PBoC is loosening monetary policy to support growth by lowering banks’ RRR alongside policies to incentivise banks to lend more to the private sector. Impacts If the policy fails and leverage increases relative to GDP, then risk in the financial system will rise. If RRR cuts cause consumption to increase, China’s trade surpluses are likely to decrease, helping ease trade tensions with Washington. Liberalising interest rates will, when it eventually happens, allow banks to price loans to private firms more accurately.

Afterword

2020 ◽  
pp. 610-628
Author(s):  
Ranald C. Michie
Keyword(s):  
Global Financial Crisis ◽  
Supply And Demand ◽  
Banking System ◽  
Financial System ◽  
Central Banks ◽  
Global Banking ◽  
The Us ◽  
Direct Government ◽  
The Global Financial Crisis ◽  
Global Financial System

The shock to the global financial system in 2020, caused by the coronavirus, provides is a test for the measures taken since the Global Financial Crisis of 2008. The coronavirus has caused a shock to the global economic system, disrupting both supply and demand, and this demands more direct government intervention than central banks are able to provide. Whereas the 2008 crisis was one centred on the global banking system that of 2020 was an event akin to a war, natural disaster, or a political revolution. In turn that had implications for the global financial system as it contained the potential to destabilize banks by threatening the solvency of those to whom they had made loans and extended credit. To forestall such an event central banks are called upon to act as lenders of last resort, particularly the Federal Reserve, as it was the only one capable of supplying the US$s on which all banks relied when making and receiving payments, and borrowing and lending, among themselves. From the outset that response appears to have learned lessons from the mistakes of the 2008 crisis, in terms of speed, scale, and co-ordination, while the global banking system is far more resilient.

scholarly journals AN IMPACT ASSESSMENT OF NEGATIVE INTEREST RATES OF CENTRAL BANKS

Ekonomika ◽  
2017 ◽  
Vol 96 (1) ◽  
pp. 25-46
Author(s):  
Linas Jurkšas
Keyword(s):  
Interest Rates ◽  
Positive Impact ◽  
Well Being ◽  
Central Banks ◽  
Impulse Response Functions ◽  
Economic Sectors ◽  
Positive Effects ◽  
Negative Interest Rates ◽  
Short Run ◽  
Interest Margins

The central bank community has been split into those who started to employ negative interest rates (NIR) and those who do not intend to do so, irrespective of the similarity of the economic situation. Moreover, while five central banks have applied negative policy rates from 2012, the launch time, scope and motives behind differ significantly. The fact that central banks have simultaneously pursued NIR at a time when the global financial system is not in a crisis is unprecedented and is a consequence of several fundamental and mutual factors. So, the purpose of this paper is to find out the motivation behind employing negative policy rates and assess how NIR affect different economic sectors. The statistical analysis reveals that the overall outcome is highly controversial, depending on the weight assigned to each economic sector as well as to short- and long-term goals. On the one hand, NIR lead to an overall positive impact on aggregate consumption, increased well-being of net borrower, investing NFCs, indebted governments and even financial institutions in the short run. On the other hand, savers and banks with high excess reserves and less room to reduce net interest margins are the most negatively affected. The impulse-response functions of created vector autoregression model for the euro area confirms these results: an interest rate reduction shock decreased borrowing and deposit rates, net interest margins but positively affected confidence, bond and equity prices, leading to somewhat higher expectations of economic growth and inflation in the longer term. While the lower bound of NIR remains uncrossed, further rate cuts in the negative territory or keeping them for a prolonged period of time might alter negative externalities. If expectations start looming over the material policy change or materialization of financial systematic vulnerabilities, positive effects of NIR could become more muted in the longer term.

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