Negative Interest Rates (?)

79Au19779Au197 Posts: 4,047 Gold ✭✭✭✭✭
First off, would someone more learned than I please comment on this issue.

When central banks loan fiat to other banks, the central bank creates fiat out of thin air, loans that fiat to other banks, and then charges other banks interest on that fiat.

With this in mind, when a central bank sets a negative interest rate, would this not imply that the central bank is actually paying other banks to borrow the fiat created out of thin air. In theory, the lesser banks still have to pay back the loan to the central bank, but the central bank pays them to borrow the money. Is my thinking on this correct?

If the above is correct, then the local banks need not necessarily charge regular customers negative interest rates, that is charging customers it keep their fiat. But since they are being paid by the central bank to borrow money, they can loan fiat to customers at less than the normal usury rate, still make a guaranteed return, and put more fiat into the economy to stimulate spending and hence growth.

Truth be told, BitGold is technically offering us negative interest in the form of transaction fees to hold our money. We pay BitGold to hold our gold.

Gold is money, everything else is credit - author unknown

Money is gold, and nothing else - J. P. Morgan, 1912



  • MelanieMelanie Posts: 1,045 Gold ✭✭✭✭✭
    Technically, we simply charge set transaction fees for our service that have nothing to do with interest ;) Though part of that fee does go towards the cost of gold storage.
  • 79Au19779Au197 Posts: 4,047 Gold ✭✭✭✭✭
    edited February 2016

    Technically, I was trying to point out that BitGold charges a fee - actually two fees, one to deposit and one to redeem. Then I made the bad analogy that this is technically negative interest because we have to pay BitGold. But of course it is not technically interest, because it is not recurring and forever, but based on the number of transactions, even though it is based on a percentage of the amount of each transaction.

    So even though I was technically wrong to suggest that BitGold charges negative interest, I was actually wrong to suggest it as well. Which makes you correct, as usual. B)

    That having been said … although there may be no such thing as a free lunch, the extremely low cost of BitGold's transaction fees make it the lowest cost way to own and use gold.

    Now back to the discussion of negative interest rates …

  • solargoldsolargold Posts: 115 Copper ✭✭
    edited February 2016
    Not sure if this has been discussed in any interviews, but what I would be very interested to know from BitGold is whether the current structure of 1%-in/1%-out is the long-term plan. That is, is that sufficient for the long-term business model, or is that a "teaser" and in the future higher fees will be necessary for the gold storage. Because as it stands, 1%-in/1%-out is quite cost competitive, so definitely hoping the plan is not needing to increase this!
  • 79Au19779Au197 Posts: 4,047 Gold ✭✭✭✭✭
    edited February 2016

    I have wondered about that too. Either:

    A. at some critical number of daily transactions it will be net positive
    B. it is a "teaser" to rapidly grow the customer base, but rates will eventually increase
    C. other fees (redeem physical gold for example) will be higher and will generate improved margins
    D. all of the above

    @Melanie ? @Roy Sebag ?

    However this is not on the topic of negative interest rates …
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