“This is why I have said elsewhere that we would not take it to absurdly low levels.”, is the quote widely reported today and attributed to Benoît Cœuré, ECB Executive Board Member.

The question of course is “what is an absurdly low level”.  Currently rates stand at -0.4% which until very recently every banker and financial person would have thought was an absurdly low level.  Negative rates were simply unimaginable.   How much lower must the rate go before its an “absurdly low level” ?

In one sense negative rates can be understood as always existing, take for instance low balance checking accounts that yielded almost no interest and were subject to fees.  Negative interest is simply the taking of principal which is the same as fees.  Only the foolish had such accounts, or those who had no ability to bank elsewhere due to what banks were available in their location, or those without enough principal to get a better deal.

How does ECB and Bank of Japan among others get away with negative rates when those depositors and bond buyers can simply bank elsewhere ?  The US still has positive interest.  Why therefore would anyone go to Japan with their money ?  The answer, at least partly, has to do with understanding the currency fluctuations, which also factor into what real gains or losses are.