When the Bank of Japan (BoJ) announced the shock move to implement Negative Interest Rate Policy (NIRP) in January 2016, it took the market by storm. The aggressive step reflected the extent of Japan’s economy difficulties and the scary prospect of deflation. Just what is NIRP all about and why should Singaporeans take note of this development? Will Singaporeans pay the banks to deposit their savings?
NIRP is used by countries to devalue their currencies so that their exports can be cheaper and thus spurring economic growth. Previously, during the era of the Great Financial Crisis in 2008, major economies like USA, Europe, Japan and China all resorted to Quantitative Easing (QE) to encourage spending in the hope of achieving growth in the long-term. However, after a long period of sluggish global growth, policy makers started to panic because they have run out of idea to stimulate growth. In Europe, countries like Denmark, Sweden and Switzerland had already embarked on NIRP. Japan followed suit early this year.
Together, Europe and Japan produce 20% of the global GDP. Thus, they are major players in terms of global trade. By adopting NIRP, they are essentially triggering a global currency war and issuing a subtle challenge to United States. After all, the greenback is still the de-facto global reserve currency. So with negative interest rates in Europe and Japan, surely traders will flee Euro and Yen and flood the US Dollar. And a rising US Dollar will have serious implications not just for USA, but also developing countries.
Many people have speculated that USA will increase interest rates at least two times this year and have dismissed the prospect of the Federal Reserves implementing NIRP. However, it remains to be seen whether this is true because things may worsen to the point that USA would resort to NIRP. If that really happened, then Singaporeans must take note. Because Singapore often take the cue from US market.
Currently, the saving deposit rates are already very low in Singapore, at the ranges of 0.3 to 0.4%. I wouldn’t be surprised if local banks took the cue from US market and slash interest rates to negative. This is because for the banks, the real money to be made is actually not from retailers’ savings but from corporate lending and mortgage loans. If the direction is to encourage lending to spur growth, then trade-off will have to be made and logically, the way to go is to slash saving rates to negative.
Fundamentally, are you prepared to pay the banks to save your money or will you withdraw all your cash and stash them under the pillow in your home? Neither approach seems appealing to me. So what is the best solution for preserving our wealth in this kind of scenario? The answer is buying gold bullion, which carries no counter-party risk and is the ideal store of value.
Many people wonder where to buy physical gold in Singapore from reliable bullion dealers at competitive prices. In Singapore, you can choose to buy gold and silver bullion from BullionStar, one of the largest bullion dealers with more than 370 bullion products. The company has a unique retail shop, vault and advanced online system providing a one-stop shop for wealth builders to view, online purchase, collect, deposit, store, value, sell, audit or physically withdraw bullion.
BullionStar also offers customers their own minted gold and silver bars with zero spread. They have commissioned world-renowned LBMA-approved Swiss gold refiner Argor-Heraeus to produce these stylish and unique minted 100 gram 99.99 % purity gold bars.
Wealth builders should be wary of the implications of negative interest rates and start diversifying their portfolios. It is still early days of NIRP and the impacts are unknown but in today’s context, cash may not be king. You may not even be aware that the value of your money in the bank is being slowly eroded away every single day. So start to take action to protect your hard-earned wealth and park your money in real assets like precious metals before you regret it.
SG Wealth Builder