Switzerland will be having a huge economic experiment called "war on cash" in 2016. The country has decided to impose negative rates on their commercial banks which will charge 0.125 percent to the current account holders.
The intent of this experiment is to force banks to lend out cash and encourage people and firms to spend their money rather than saving it and later on pay for the penalty. The Alternative Bank Schweiz (ABS) will be the first to charge ordinary customers with negative rates on their cash deposits.
According to one of the board members, Alternative Bank Schweiz will hold its negative rates until 2017. So, the experiment will eventually last for two years. Current account holders with more than CHF100, 000 (around £65,000) will pay 0.75 percent.
Other Swiss banks, on the other hand, avoid giving negative rates directly on their retail customers. Instead, they increase their account management charges despite ABS bank's claim that the negative interest rates are more reliable.
Negative Interest Rates Costs a Lot
According to Business Insider, some of the banks in the Switzerland have made things difficult for their customers to keep their electronic money in their accounts. The newly imposed interest rates can cost a lot of money which is equivalent to the customer's entire annual profit. So, to avoid negative interest rates, Swiss opt to keep their savings in cash instead of depositing them in the bank.
The Drawbacks Unfounded
Accoriding to some analysts, the negative interest rates will create an imbalance to the mortgage and real estate market. However, this possibility have immediately been proven unfounded. Economic condition in the country remains stable and GDP is expected to grow by one percent this year.
Andréa Maechler, a new member of the bank's governing board told The Local that despite the implementation of the negative interest rates and Switzerland's central bank intervention in the foreign exchange market, Swiss franc remains significantly overvalued.
