how do negative interest rates work?

Question

how do negative interest rates work?

In: Economics

Answer 1

I mean, exactly how you would expect. The lender pays the borrower for borrowing money.

The only entity that would conceivably go along with negative nominal interest rates is a central bank that wants to stimulate lending so badly it actually pays banks to borrow from it.

Sometimes other entities might offer negative real (i.e. post-inflation) interest rates. In a high inflation environment (say, 10% inflation), it would be really worthwhile to lend money at 9% interest rather than do nothing. Effectively you lose 1% of your value rather than 10%.