Despite speculation over the past year that Canada may join Japan and Europe in the NIRP club and launch negative interest rates, so far the BOC has stood its ground. However, starting on December 22, for the broker dealer clients of one of Canada’s most reputable financial institutions, BMO Nesbitt Burns, it will be as if the Canadian bank has cut its deposit rate on most currencies, to match the deposit rate of Switzerland.
In an internal letter sent today from management, the bank explains that its current policy with respect to cash balances of foreign currencies held in client accounts – excluding U.S. dollars – has been that it “does not pay or charge clients interest on these balances.” As a result, the bank writes, clients have traditionally tended not to hold non-U.S. dollar foreign currencies in a BMO Nesbitt Burns account for any extended period. However, the notice continues, “given the current global interest rate environment, which has extended much longer than anticipated, we have seen an increase in foreign currency cash reserves across accounts; indicating clients are, in fact, moving these funds into their BMO Nesbitt Burns account in order to avoid negative interest charges on cash holdings in other accounts they maintain.“Â
Welcome to the age of connected monetary vessels, where globally fungible money allows savers to bypass their own domestic “financial repression” and negative interest rates, by shifting their funds to offshore bank accounts. Or at least it did for clients using BMO Nesbitt Burns as a custodian of offshore money. Because as the bank adds, it has become necessary for the bank to update its current policy and selectively implement negative rates to avoid precisely this global interconnection. To wit:
Effective December 22, 2016, we will begin charging clients a market-rate negative interest charge of 75 basis points on cash balances of all foreign currencies held in their account(s), excluding U.S. dollars. Interest is calculated on the average daily balance during the interest period. The first negative interest charge will cover the period of December 22, 2016 to January 21, 2017, and will be charged to all applicable client accounts on January 23, 2017.
