On 22nd September 2015 we wrote about the possibility of more countries reducing interest rates to below 0%. We are now seeing more countries introducing negative interest rates, the latest one being Sweden who have lowered their interest rate from -0.35 to -0.5%. This is a sign of desperation to encourage money to ‘move’, in other words the money in the system is not moving fast enough and if it slows down, it lowers economic activity.
The other thing is falling prices, which on the face of it is good. Its cheaper to run the car and you can buy more stuff than last year. Well there might be a sting in the tail here too. For example, what if you were buying a TV but you thought it might be cheaper next week, might you wait until next week? If we all wait until ‘next week’ those cumulative decisions may slows down economic activity which is not good for anyone.
We think that if there were sufficient Kingston Pounds flowing around the borough of Kingston, they will move faster than Sterling and have a positive effect on the local economy.
So, on the one hand the movement of Sterling is slowing but the movement of Kingston Pounds will be increasing. Of course as we type this post, Kingston Pound is too small to make an impact so how do we know it will work? Check out Bristol Pound and Brixton Pound who are able to prove that local money is indeed more active.