- Governor of France’s central bank speaks positively about negative interest rates.
- The Central Bank of France is experimenting with a CBDC.
During a recent CNBC interview Villeroy de Galhau, Governor of the Central Bank of France, explained the country’s implementation of negative interest rates and its effects thus far.
On our side, we are pleased with the way negative rates work [and] I see no reason to change that level at present.Villeroy de Galhau (Governor of the Central Bank of France)
Put briefly, negative interest rates force financial institutions to pay interest for keeping funds with the central bank. In turn, banks may be more likely to lend the money out as they will have to pay interest if they do not. While a negative interest rate is not common and fraught with controversy, coronavirus has changed the economic landscape drastically.
Negative interest rates are often used to counteract deflation. For example, amid economic downturns, people tend to hold money and are generally resistant to purchasing excess goods. This results in a cash-strapped economy in which prices for goods decrease in order to promote spending. This cycle continues leading into a deflationary spiral. By promoting lending and spending, negative interest rates may help counteract extreme deflation.
Despite France’s implementation of negative interest rates, the US Federal Reserve is still not looking to implement negative interest rates. Instead, the Federal Reserve dropped interest rates to 0% back in March. Due to their risks, negative interest rates are often the last resort option for central banks.
Bank of France Launches Experimental CBDC Program
During coronavirus, France still continues to move ahead with its experimental central bank digital currency (CBDC) program. The program recently stopped accepting applications and has begun experimenting with chosen applicants.
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