The Good Neighbor Policy: Negative Interest Rates

Unfortunately, the University of Michigan Credit Union does not currently have negative interest rates.

My neighbor, Jim Arthurs (who chose fame rather than anonymity, when I posed that choice to him after writing a draft of this post), came over yesterday to bring over some mail and newspapers he had picked up for me looking after our house when I was in Washington D.C. talking to the folks at the Fed. He said he hadn’t realized until recently that many of my trips this past year have been to central banks to talk about how to handle money.

Jim said it made sense to him that banks could charge people for taking care of their money–something I talk about in “America’s Big Monetary Policy Mistake: How Negative Interest Rates Could Have Stopped the Great Recession in Its Tracks.” He pointed out that banks already charge many fees, so it wouldn’t be such a big change.  

Jim wanted to get clear how it would help the economy if people had to pay for the safekeeping of their money. I said that now, many individuals, banks and firms have piles of money they are not doing much with. If they were charged for keeping piles of money that aren’t doing anything, they would be more likely to put the money to work by doing something with it–like building a factory and hiring some people.

It is often claimed that non-economists would be freaked out by the idea of negative interest rates. Not all of them.