Small events can take on great significance. One sleepy summer nine years ago, the French bank BNP Paribas suspended trading in three of its money-market funds. The announcement caused a tremor in financial markets, but raised barely an eyebrow elsewhere. Little more than a fortnight later, trading was resumed. Maybe, just maybe, someone at BNP thought that would be the end of the story. They can’t have thought that historians would take that initial announcement on 7 August 2007 as the start of the credit crunch. The suspension of trade was such an unusual move, and came as the worries over subprime mortgages had built to a critical point. Trust in the financial system eroded, then crumbled entirely.

Negative iniquity – subzero interest rates would hit the poor hardest | Letters Read more

The historic slump that followed has helped produce all kinds of unforeseeables: Britain’s exit from the EU, the ascent of Nigel Farage, Jeremy Corbyn’s leadership of the Labour party. And perhaps, just perhaps, the next chapter began this week, with an innocuous-seeming letter from a high-street bank to its customers.

Again, it does not seem like much: NatWest writing to small-business account holders to outline a change in terms and conditions. The language is the usual bank anaesthetic, but its implication is truly historic: “Global interest rates remain at very low levels and in some markets are currently negative … this could result in us charging interest on credit balances.” The state-owned bank is preparing hundreds of thousands of shopkeepers and manufacturers for their interest rates to fall below zero. It may well be that a small firm keeping £1,000 at their local bank could soon see that deposit shrink to £999 or even less. And if today it is small businesses, tomorrow it may be households storing a lot of money at their banks. Since the crash, savers have lost out – but never in modern British history have they actually faced negative interest rates.

Just why this should be is not hard to fathom: faced with a stalling world economy, central banks are cutting their rates below zero. If, for argument’s sake, Santander wants to store £1,000 with the European Central Bank for a year, it will find that in 2017 it draws out only £996 – because Frankfurt now has an interest rate of -0.4% for commercial bank deposits. At the Swiss National Bank, it’s even worse: -0.7%. Next Thursday, the Bank of England is to cut rates below 0.5%, perhaps even to zero. Beyond that lies the uncharted territory of negative rates. Since Brexit Britain is very likely to go into recession soon, Mark Carney and his colleagues will be right to cut rates, but the implications of “minus money” are huge and uncertain. Japan has had negative interest rates for months and low rates for decades – neither seems to have pulled it out of its slump. It may be that in the credit-happy Anglo-American economies, shoppers will take the fact that their savings are now shrinking as a cue to splash out on a new conservatory. Since easy monetary policy has already sparked a boom in ultra-cheap mortgages, another cut may mark a last hurrah for the housing bubble.

But there is one important point to make: minus money will affect Britons very differently. Negative rates fall hardest on the grey-haired rich. For the young or the insolvent they may mean little. They could be destabilising for financial institutions. Banks rely on rates to make returns. As the former Bank of England rate-setter Charlie Bean has written in a recent paper for The Economic Journal, pension funds will struggle to make adequate returns, while fund managers will borrow a lot more to make profits. Mr Bean says: “All of this makes a leveraged ‘search for yield’ of the sort that marked the prelude to the crisis more likely.” This is not comforting but it is highly plausible: barely a decade on from the crash, we may be about to repeat it. This comes from tasking central bankers with keeping the world economy growing, even while governments have cut spending. From small announcements, large consequences can follow.