The basic idea is that the Bank of England (BoE) starts charging for any surpluses held by banks who have accounts at the BoE. Currently the BoE has to pay interest to the Banks.
All of banks and building socities have to hold accounts at the BoE - to make sure that all transactions in the economy are balanced up at the end of a day and so that as the lender of last resort they can inject money into a failing bank (electronically).
If the banks do not get interest at the BoE and have to pay them to hold money in reserve then the idea is that will hold £0.
This is supposed to release this cash into the economy in the form of more debt of course.
http://www.independent.co.uk/news/business/news/qa-so-what-is-a-negative-interest-rate-8512008.html
Why would people take on more debt when all of the signals are that debt is bad and we all need to pay it down? From government onwards.
77% of bank created credit is issued to be used for financial speculation and as mortgages, leading to rampant property inflation. Why would banks lend to business when Limited Liability law means in the event of administration or bankruptcy they only get a fraction back of the original loan?
The convulsions and somersaulting to protect a banking system and monetary system that is busted are getting ridiculous.
If BoE policymakers seriously want to get the ecnomy moving and encourage spending then they should issue debt free money via public spending or an injection of a citizens income.
