One week ago, in the aftermath of Japan joining the NIRP club, we wondered how low Kuroda could cut rates if he was so inclined. The answer was surprising: according to a Nomura analysis the lower bound was limited by gold storage costs. This is what the Japanese bank, whose profit was recently slammed by Japan’s ultra low rates, said:
“theoretically, negative interest rates’ lower bound depends partly on the cost of holding cash in the form of physical currency. When people hold cash out of aversion to negative interest rates, they risk losses due to theft and the like. The cost of avoiding this risk could be a key determinant of negative interest rates’ lower bound, but it is hard to directly quantify. As a proxy for the cost of holding physical currency, we estimated the cost of storing gold based on gold futures prices. This cost has averaged an annualized 2.4% over the past 20 years, though it has varied widely over this timeframe.”
~~~~~~~~~~~~~~~~~~~~~~~~
Obviously no one will put money in a bank to lose money. What happens to a business when no one buys or uses its products or services? I went into a bank yesterday to see their interest rates on a savings account. The “interest” rate was marked on the chart as YES or NO. When I asked what the interest rate actually was, the teller kindly got off her cell phone to get a rate sheet. The best rate at $100,000 minimum was 0.045%. I was not allowed to take a copy of their rate sheet: it was for “INTERNAL USE ONLY”.
David DeGerolamo
