Originally Posted by Piobaire
Originally Posted by skeen7908
I never quite understood negative interest rates
If you pay a penalty on reserves isn't the net effect a reduction of the monetary base? As the BoJ is effectively removing that money from the banking system
Of course people will rather hold assets and that is the point but somebody has to end up holding the yen and paying the penalty
I understand the intention is to debase the currency but there are much easier ways of doing it that involve EXPANDING the currency supply rather than shrinking it (ie government expenditure not funded by bond sales)
There is a host of folks here better equipped to speak to this but isn't the main goal of this to get commercial banks to aggressively lend money? This is to fight stagnation and deflationary pressures, isn't it?
Yep. Monetary policy can move either the supply or demand for money. IOR and reserve requirements are the textbook instruments for targeting demand for base money.
The higher the interest the Fed is paying on reserves, the higher the opportunity cost Banks face for lending, the less broad money entering the system through the multiplier effect. And vice versa.