Cashless society

zagfles

Ballard wrote: »

I don't agree at all that "everyone" will withdraw their money from the banking system. Those with a few grand might well do but anyone with more than that and a brain cell won't leave tens of thousands at their house. They may buy stocks, foreign currency or bricks and mortar, for example, but the vast majority will still need a bank account and they will still keep the account funded. £50,000 would cost £20 a month at -0.5% but that would buy security.

I repeat that Europeans, Danes & Japanese still have cash in their societies despite the negative interest rates.

We effectively have negative interest rates now - as inflation is higher than the BoE base rate. So yes people find other ways of investing so their savings (hopefully) don't lose money.

Ballard

zagfles wrote: »

We effectively have negative interest rates now - as inflation is higher than the BoE base rate. So yes people find other ways of investing so their savings (hopefully) don't lose money.

I did consider bringing that up myself but it's another step from your money not being worth as much as it was when you deposited it and actual loss of capital.

Another point is that even if the base rate went negative it doesn't follow that fixed deposits would follow. It's quite conceivable that funds could be deposited for 12 months and earn a little positive interest. Not exactly enough for a Caribbean cruise but at least it wouldn't decrease.

Anthorn

Very good philosophy in this thread but completely divorced from reality. Yes we are in negative interest rates but people have not in fact sought alernative means of investing. They still stick with what they're offered which is a still measley 3% or 4% or 5% in a current account but which is seen to be safe. If interest on savings was completely removed everywhere how many of us would withdraw all our money and keep it under the mattress? Not many I'd say.

FOREVER21

Ballard wrote: »

Could you actually do that? How would you receive your pension? Would the loss of direct debit discounts (gas, electric, telephone, for example) be less than the interest that you'd be charged?

Pension over the counter from post office.

Discount for utilities by DD = £10 per year, in total don't think I would miss that. Of course it all depends on how much the banks would charge.

Flobberchops

Cashless society? I'm going to stick my neck out and say that within 20 years we'll be 99% cashless (and probably close to 100% cheque-less).

With contactless payment it's becoming increasingly redundant to carry loose change. Vending machines, parking meters, taxis and public transport are all transitioning to card optional or cash-free these days. Even small businesses offer card payments. When I buy a round at the pub I use contactless and if I owe a friend a tenner, I can do it via mobile banking. Of course everyday expenses like groceries and bills are all best done by card or online anyway.

Regarding the danger of the banks slyly waiting until we've tossed our worthless coins and notes into the gutter and promptly dialing the interest rates down to -5%... I don't think that will happen. That would be a major political upset and any government supporting such a practice would be euthanised in the next elections. Not to mention any bank willing to offer a positive interest rate would suddenly find themselves controlling a monopoly. Besides, as zagfles pointed out, it's not really so different to the narrowing gap between earnings and cost of living that we have presently through inflation. Even if that did happen, wouldn't most savers simply respond by ditching cash in favour of investments?

I'm struggling to think of any situations where cash is the only option (aside from cowboy builders asking for cash in hand payment). Possibly it would still be the method of choice for small, ad-hoc purchases from untrusted vendors, like say a market stall.

Ballard

I don't think that anyone's suggesting that any bank will decide to impose negative rates on its customers. This would have to be lead by the BoE dropping the base rate.

securityguy

The issue of negative interest rates in Japan and other struggling economies doesn't affect customers. Here's a somewhat technical explanation:

http://www.marketwatch.com/story/what-you-need-to-know-about-the-bank-of-japan-and-negative-
interest-rates-2016-01-29

What the Japanese central bank has done is cut one very specific interest rate to below zero: that paid to banks which deposit with the central reserve amounts greater than their regulatory obligation. That's excess funds they could, and arguably should, be lending: capital and deposits above the liquidity ratio demanded by their regulator. Mortgage rates are low and deposit rates are extremely low:

http://japan.deposits.org/savings-accounts/

but have been for some years, as the economy is stagnant and inflation is extremely low.

The Japanese government want to encourage banks to lend to businesses, and for consumers to either spend money or even better to invest it in businesses. The Japanese "lost decade" stemmed in part from extremely high rates of saving (in the mid 1970s, 25% of household income was saved) which piled up huge amounts of money in banks which in turn piled up huge amounts in the central reserve. Which if you have a view of national finance akin to a well-run household is bad enough (it's the equivalent of saving for a rainy day while the water pours in through a hole in the roof) but as actual central bank economics is complete madness. There's a good analysis here:

http://www.bbc.co.uk/news/business-30603313

SailorSam

My computer broke last week, i got onto virginmedia who said it was the router and they'd send me a new one. Saturday morning the router arrived but the computer still didn't work, so i phoned a number of a guy in the paper.
Ok i'll guarantee to get it going, that will be £45 please. I say will you take my card or would you rather have a cheque.
Cash only if you don't mind.

ChiefGrasscutter

Ballard wrote: »

I don't think that anyone's suggesting that any bank will decide to impose negative rates on its customers. This would have to be lead by the BoE dropping the base rate.

here you go then.....first bank to do just that.
http://uk.businessinsider.com/afp-swiss-alternative-bank-breaks-negative-rates-taboo-2015-11

This will apply to ALL retail deposits with higher levels of deposit attracting a (yes who'd have thought it) a higher negative interest rate.

Meanwhile demand for the Swiss 1000CHF note has soared - now I wonder why that might be....
http://www.wsj.com/articles/circulation-of-switzerlands-1-000-franc-note-jumps-1456139134

One unknown is what would be the reaction of those annually haircutted in such a fashion if it did spread widely to retail deposits.
Would people with money who are probably savers rather than spenders react to being "surcharged" by spending it - or more significantly would they react to their future spending power for their old age being eroded by instead clamping down further on any discretionary expenditure.
Therein lies the concept of a deflationary spiral.

Ballard

ChiefGrasscutter wrote: »

here you go then.....first bank to do just that.
http://uk.businessinsider.com/afp-swiss-alternative-bank-breaks-negative-rates-taboo-2015-11

This will apply to ALL retail deposits with higher levels of deposit attracting a (yes who'd have thought it) a higher negative interest rate.

Meanwhile demand for the Swiss 1000CHF note has soared - now I wonder why that might be....
http://www.wsj.com/articles/circulation-of-switzerlands-1-000-franc-note-jumps-1456139134

One unknown is what would be the reaction of those annually haircutted in such a fashion if it did spread widely to retail deposits.
Would people with money who are probably savers rather than spenders react to being "surcharged" by spending it - or more significantly would they react to their future spending power for their old age being eroded by instead clamping down further on any discretionary expenditure.
Therein lies the concept of a deflationary spiral.

Being as the SNB have a rate of -0.75% I'm not sure of your point as it doesn't invalidate my argument that banks will follow the central bank.