After continued five years of negative rates imposed by the European Central Bank, some banks in Germany now have passed-on the charge to their retail clients for all their savings in the account.

Earlier many banks pass on the ECB’s charges only to large corporations or wealthy clients, and for deposits above the threshold of 100,000 euro.

The trigger for passing the rates to retail clients was due to the European central bank (ECB) decision in Sept 2019 to increase rates to 0.5%. Given the fears of the upcoming recession, the rate cuts may go even further.

Under a negative rate policy, financial institutions are to pay interest for parking excess reserves with the central bank. With such a policy, banks get penalized and therefore, lend more money freely to businesses and consumers.



More about negative rates: Fostering negative interest rate policy through digital currency.

Any implications for cryptocurrencies:

Started with few banks in Germany who passed-on negative rates to retail clients, experts believe this could cause a chain reaction. Banks that currently do not impose negative rates would soon be flooded with liquidity and may force to charge the retail clients.

Banks in Germany have long resisted passing on negative rates to retail clients, concerned that they will face reputational damage in a country where people save far more of their disposable income than elsewhere in Europe. The country’s savings rate was around 10% in 2017, almost twice the euro-area average.

With now negative rates on all savings, Germans may look for alternatives to save their disposable income. This leaves cryptocurrencies such as stable coins (pegged to fiat) as the best option for the store of money. Other options could be cryptocurrencies with staking benefits.

How many know about cryptocurrencies in Germany: According to the survey by German consumer centers, more than 55% of internet users in Germany know about cryptocurrencies, however, they are reluctant to invest in it citing lack of investment protection (custody and regulatory status) as a key reason.

Now with the recent amendment in the bill, German banks are allowed to sell as well as store cryptocurrencies. Given the experience of banks in risk management and client’s assets safekeeping, depositors may feel comfortable to invest via banks and may try cryptocurrencies (mainly stablecoins) as a store for their money.

An interesting development for European Central Bank:

Along with technical aspects to launch a digital currency, ECB is also assessing the implications of digital currency on the financial system as well as monetary policy, especially negative rates.

Much of Europen banks don’t pass on negative rates to their clients. However, with digital currency things may change as customers may get charged directly on their savings. The implications could be that clients hold paper money than putting in deposit accounts.

Now German banks starting to pass on interest rates to clients, it has caught the attention of ECB. By studying this development, ECB can asses how to structure monetary policy for its upcoming central bank digital currency.

Read more: Why the central banks are rushing to create a digital currency.

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