This practice was used by Japan’s central bank as part of their quantitative easing strategy from 2001 to 2006. Sweden is not seen as an extreme case, and while the first central bank, will probably not be the last even as there is talk among world policy makers that rates will head higher.
Mervyn King, the Bank of England governor, has hinted he may follow the Swedish example as the danger of a so-called liquidity trap, where cash remains stuck in the banking system and does not filter out to the wider economy, is an increasing concern for the UK.
Hoarding is exactly what happened in Japan earlier this decade when the Bank of Japan implemented quantitative easing between 2001 and 2006.
The UK is specially interested in both the Japanese experiment and how the Swedish fare in Negative territory because if British banks do not make use of the extra cash been injected into the system the BoE could find itself in need of using such methods.
