Bulls, Bears & Bucks #60: Viva Obama

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Coming soon to the UK: negative interest rates?

Now Charles Goodhart, a former Bank policymaker and someone with an impeccable reputation, has come along with a suggestion: why not start charging the banks for holding large amounts of reserves with the Bank? In effect, he is proposing negative interest rates for these banks. At the moment they receive interest on those reserves at the Bank rate (ie 0.5pc), which is hardly generous but then is no deterrent to leaving the cash safely in the bank. If, as Goodhart suggests, you charge them a 0.5pc fee on every pound above a certain amount, it would encourage them to go out and use that cash lending to businesses and people, hopefully combating the credit crunch.