9  Ben S. Bernanke and Vincent R. Reinhart, “Conducting Monetary Policy at Very Low Short-Term Interest Rates,” paper presented at the International Center for Monetary and Banking Studies Lecture, Geneva, Switzerland. January 14, 2004. 10  See the Securities and Exchange Commission, “SEC Adopts Money Market Fund Reform Rules: Rules Provide Structural and Operational Reform to Address Run Risks in Money Market Funds” July 23, 2014 http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542347679 for a discussion of reforms that limited fixed NAV designs for money market mutual funds to retail and Treasury-only funds. 11  A theoretical model that captures this idea is described in Jess Benhabib, Stephanie Schmitt-Grohe, and Martin Uribe, “The Perils of Taylor Rules,” Journal of Economic Theory 96, (January/February 2001): 40–69. 12  There have been a couple of informal polls by Swiss newspapers. For instance, in December 2014, after the SNB first announced negative rates (25 bps), the Tagesanzeiger (one of the biggest Swiss newspapers) asked readers whether the decision was a good one. Of the respondents, 47.7 percent said, “Yes, it’s necessary to maintain the exchange rate” [the floor was still in place then], while 52.3 percent said, “No, this policy punishes savers.” http://www.tagesanzeiger.ch/wirtschaft/geld/Geldpolitik-Nationalbank-fuehrtNegativzinsen-ein/story/26525077). BIS central bankers’ speeches  9  Conclusion Even though nominal rates can become negative, zero is still an important benchmark: below that level of rates, society faces a distinctive set of complications and costs that can blunt the intended good effects of a negative nominal rate policy.

7 Consequently, our proposition could now include this consideration: Different economic agents will be more or less willing to invest in negative rate investments to the extent that their costs of handling currency are lower or higher than others’, and to the extent they have available to them zero interest rate economic arrangements. In addition, having talented individuals looking for these opportunities is a dead-weight loss to society. We would rather have them use their talents for more socially productive purposes. In addition to the convention that all prepayments of debt carry a zero interest rate, creditors often have the option of deciding when to settle a debt, for example by choosing when to deposit a check once it is received. In an environment in which negative nominal rates prevail, one would want to collect debts slowly (at least from creditworthy counterparties). 8 For example, if one were to receive a check from the U.S. government for a tax refund, one could simply put it in a safe place and earn zero interest on it during the time the check remained undeposited. (These practices could trigger further innovations, such as a check with a “deposit-by” date embedded in it.) How strong these incentives are depends on the level of the negative rates. The lower the negative rate and the more persistent it is expected to be, the more attractive these practices would be. Consequently, these zero rate economic arrangements form another constraint that would prevent rates from going too far into negative territory.