6. Central bank's negative rates

If you asked investors, they would not accept 1%-2% as annual returns for investment.

Thus leaving rates at 0% - 0.5% is definitely a horrible situation for investors. They would find something providing better rate of return on investment such as

- Real estate market: currently in bubble state
- Stocks
- Bonds
- Invest in new business would require expertise. Only capital venture capitalists have this experience. Some business startup did approach billionaires, but it's rare.
- Mutual fund's MER (management expense ratio) is around 2% or more, thus mutual fund managers would be in trouble with parking cash.

Having negative rates would create chaos, especially heavy weights US Fed and ECB. ECB decided to go with negative rates, which forced other countries to follow its steps otherwise their central banks would be flooded with cash by fleeing investors.

Investors like to hold US treasury and Euro to park cash while searching for investment. If they couldn't find anything to invest, they would have issues with their shareholders, too.

USD and euro must be traded at higher valuation as compared to other currencies as a fact. USD is an international currency, and companies like to quote their products in USD. USD is used by 360 million Americans. Euro is a currency by many EU members with around 509.7 million people.  In brief, US Fed and ECB could set any rates that they like, other countries would follow suit, and then USD and euro would be traded high as usual, i.e. negative rates to devalue their currencies wouldn’t work.

I think, the best floor rate for a central bank would be 1% plus QE during trouble times. Leaving rate at 1% would cause less noise and trouble to other sectors such as income investment, pensioners, and housing market.

-> Doing QE would devalue its currency, btw. It’s the same effect as low interest rates.

Currency traders like job growth reports. If the economy has crunched out many jobs for many months in a row, they would jump in to buy the currency, i.e. beat it upward. The other country with higher interest rate still has lower currency exchange rate. Therefore the interest rates didn’t impact the valuation of a currency as stated. For example, US dollar’s exchange rate has jumped upward after 200K jobs had been reported for many months in a row even though the interest rate set by US Fed stayed at 0.25%. Other countries having higher interest rates observed lower exchange rates as compared to USD as a result.

[Check the statistics, if I recalled correctly, CAD was traded at par with USD at the beginning. Canadian dollar has dropped consistently to around $0.80 USD after many 200K job created per month reports from US economy, i.e. 20% drop in value with interest rate unchanged from both countries. Canada didn't create many jobs during that period.]