Question

what the risks related to reducing interest rates below zero.

Answer 1

Risk related to reduction of the interest rates below zero-

A. There will be a complete discouragement of savings and it will mean that people will not be saving because there will be negative rate on savings

B. It will also mean that people will be scared to spend cash because they are penalized for saving.

C. negative interest rate can also trigger Bank runs because when there will be a negative interest rates on savings, people will be taking their money out of the banking system and it can trigger a bank Run.

D. There will be very high risk related to money laundering and other illegal money moving into the hands of public and flotation of those illegal money because there will be lesser of the money which will be coming into the market and more of the money which will be held in cash.

E. Negative interest can not completely eliminate the recession and it can even eliminate the possibility of recovery

F. Economy with negative interest rate will not be attractive to the foreign investments and foreign nationals will not be investing into such economies

G. Economy with negative interest rate are also subjected to depreciation in their currency.