Swiss Finance Minister:examing capital controls including negative rates

Discussion in 'Wall St. News' started by ASusilovic, Dec 21, 2011.

  1. negative rates are technically not legislatively possible :/
  2. Plain wrong. Switzerland had in the 70´negative interest rates:

    Negative interest rates naturally attract attention
    given Switzerland’s use of these between 1972-1978.
    A surcharge on non-resident deposits was sufficient
    to push net interest rates to -40% in 1978.*d_414632.pdf*h_-1vgm7fk

    Leaving aside the abstruse issue of whether the nominal
    interest rate can ever go negative, the de-facto yield to
    foreign investors can of course be set below zero should the
    authorities impose a sufficient capital surcharge on deposits
    held by non-residents (this can be viewed as an extension of
    a withholding tax, except that in this case the tax is levied
    on the principal rather than the interest).
  3. The CHF LIBOR fixing has actually gone negative for a few days this year (not 3M).
  4. Qbit


    Why did, on average, banks effectively pay another bank to borrow CHF from them, instead of asking for interest?
  5. Think of it as a "storage charge" for money, similar to the fee for the use of an extremely safe, safety deposit box. :cool:
  6. Well, in this particular case, the reason was that the SNB was doing massive trades in the FX fwds mkt where it was paying banks to borrow CHF from it. So the implied mkt rate went negative.
  7. Qbit


    ok makes sense, I remember that, happened a couple of months ago. Thanks!
  8. I ca not speak to whether current legislation prohibits negative rates (although I doubt it does) but in the '70s my partner and I owned a tiny -- two employees beside us -- Swiss investment bank. Our office was in Lugano and I was stunned when ourbank noticed us that as of the following month the rate on Swiss currency deposits was -2% for foreigners or foreign controlled businesses. It applied to us but our balances were mostly in London and New York so what we had in Switzerland was modest; the juice was not a material item for us.

    On the other side of the coin I remember when Turkey took their overnight annualized rate to 1600% to squeeze those short the Lira. There is virtually no limit to what a governments and/or central banks can implement if they perceive crisis. If the Swiss do go negative, particularly if the go that route modestly and then raise the price once, the gold longs will be sitting pretty.

    A friend of mine paid over $20 for a big mac, fries and a soda in Geneva over the summer. I am told that except for the wealthiest the residents of Geneva walk across the bridge to France to shop -- even for groceries. The Swiss simply can not (and will not) let themselves become a full fledged alternate reserve currency. Their float is tiny and the consequences of mismanaging where they could be headed are unimaginably bad!

  9. luisHK


    What bridge ?!?

    But definetely an expensive city.
    #10     Dec 21, 2011