Plain wrong. Switzerland had in the 70´negative interest rates: Negative interest rates naturally attract attention given Switzerlandâs use of these between 1972-1978. A surcharge on non-resident deposits was sufficient to push net interest rates to -40% in 1978. https://mm.jpmorgan.com/stp/t/c.do?i=E0003-F&u=a_p*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).
Why did, on average, banks effectively pay another bank to borrow CHF from them, instead of asking for interest?
Think of it as a "storage charge" for money, similar to the fee for the use of an extremely safe, safety deposit box.
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.
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!