The ultimate aim of quantitative easing is to ‘force’ banks to lend money and encourage investors and consumers to spend in order to keep the economy moving and avoid deflation. One of the options available is for a central bank to reduce interest rates to zero, or in some cases below zero, to penalise the holders of cash and to lower the currency to generate lending, spending and growth. But the problem with economic theories is that often human behaviour does not respond the way the theories predict.
The Swiss National Bank recently reduced the rate that banks earn on their deposits to -0.75% as it tries to defend its economy in the global currency war. It is believed to be the first time a major central has moved rates so far into negative territory. Of course the further rates go negative, the more it costs depositors to place money in the bank and with such steeply negative rates it has now become better, financially, for Swiss depositors to withdraw their money from the bank and store it.