In case you missed it, the Danish central bank has posted negative rates on deposits. Denmark now joins Switzerland where yields on Swiss issued debt became negative last August. These two European countries opted not to join the euro and find that their currencies have become a safe haven given the shakiness of the euro. The currency flight to Switzerland and to Denmark is driving up the value of their currencies and is becoming a concern. Given their dependence on exports, their strong currencies mean that their goods are becoming more expensive relative to the euro. Switzerland is seriously considering restricting inflows of capital. However, similar actions in the 1970s fail to stem the capital inflows. Of course the US is also benefiting from the problems in the eurozone despite its own fiscal irresponsibility. Indeed, unlike Denmark and Switzerland, the US welcomes the inflows since exports constitute a relatively small portion of its GDP. But doesn't it tell you something that investors would rather park their money in krone and Swiss francs at negative rates than hold cash in euros?
Harold A. Black is professor emeritus in the Department of Finance, University of Tennessee, Knoxville having retired after 24 years of service. He has served on the faculties of American University, Howard University, the University of North Carolina - Chapel Hill and the University of Florida. His government service includes the Office of the Comptroller of the Currency and as a Board Member of the National Credit Union Administration. He also has served on the boards of directors Home Savings of America and its parent company, H. F. Ahmanson & Co., Irwindale, California prior to its merger with Washington Mutual Savings Bank, on the board of New Century Financial Corporation, Irvine, California, then the nation’s largest real estate investment trust and as director and later chairman of the Nashville Branch of the Federal Reserve Bank of Atlanta. He writes an occasional article for the Knoxville News-Sentinel at http://www.knoxnews.com/staff/dr-harold-black/. His web page is haroldablackphd.com