Negative Rates of Interest

Economic Affairs Money Supply and Monetary Policy

Amidst the global slowdown, the European Central Bank in 2014 lowered its key interest rates to below zero in order to boost growth. The central banks of Sweden, Switzerland, Denmark and very recently Japan have followed the suit and lowered their interest rates below zero.
The idea is to discourage banks from parking their money with central banks and instead lend it at cheap rates to businesses and individuals. This enhanced money supply is supposed to generate economic activity and growth for these economies. Apart from this, the negative rates of interest aim to increase inflation amidst persistent deflation thereby boosting growth.
Negative rates of interest also lead to depreciation of currency thereby increasing the competitiveness of exports in the global market. At the same time, depreciated currency discourages imports as they become costly and hence boosts domestic manufacturing or services. Depreciated currency also enhances foreign investment due to higher returns for investors. This all leads to enhanced growth for the economy.
But despite these aims, the negative rates of interest have not been able to boost growth effectively in the countries pursuing them and have instead led to certain distortions in economy of not just these countries but entire world.

The practice of keeping interest rates below zero can have negative repercussions in certain ways.
First of all, such practices are harmful to the health and profitability of the Banking Sector thereby jeopardizing its sustainability in the long run. The crash of American banking sector few years back was triggered by somewhat similar policies that allowed for sub-prime cheap lending.
The worry among many experts is that banks, institutional investors and even individuals desperate for higher returns might be seduced into taking foolish risks. They might also be tempted to make big investments overseas, driving up the price of stocks and bonds creating bubbles that expose the global financial system and economy to another crisis. Some analysts are already worried about high prices for real estate, stocks and other assets.
Such below zero interest rates often fail to deliver growth as intended. This is due to the situation of 'Liquidity Trap' in which due to extremely low interest rates, people don't save with banks and instead stash their savings in cash or assets with them. This creates liquidity crunch in the economy as the money supply reduces and is counter-productive to growth.
Finally, such negative interest rates may lead to futile currency wars between countries thereby harming global economy in the long run.

Any such measure of negative interest rates should only be for a temporary or short term period and should not be extended for long due to possible negative impacts discussed above.
It would be far better if governments used fiscal policy to increase demand by investing in roads, bridges, railroads, ports and other infrastructure. Government spending would create jobs and stimulate economic activity, and boost growth.