On June 11, 2014, the European Central Bank broke new ground by lowering one of its key policy rates below zero. That is, the rate in question (the rate on the deposit facility available overnight to European banks) is now negative. While a policy rate can in principle be set at any level, it is more difficult to think about a market interest rate that would be negative. Indeed, one would always earn a higher return by simply holding on to one’s money rather than depositing it for a negative return. Yet, the graph shows two rates—one in Switzerland and one in Denmark—that are in negative territory.

What’s special about Switzerland and (more recently) Denmark? The Swiss franc has a reputation as a very stable currency and hence acts as a refuge currency when trouble is brewing elsewhere. Given that Switzerland is a small economy, when the Swiss franc is high in demand worldwide, investors are willing to accept negative rates if they think their own local currencies may depreciate. This happened when the fixed exchange rate regime of Bretton Woods was in jeopardy, later when European currencies were volatile, and recently when the European Monetary Union went through some pains and few non-euro currency options were available. One of those currencies was the Danish krone, which then also found itself in the role of a refuge currency.

How this graph was created: Search for “immediate rates,” select the relevant countries, and click on the “Add to graph” button.

Suggested by Christian Zimmermann