absence of timely payment of interest, the omitted interest payment will be deducted from the principal due at maturity. in this case the bond would be redeemed for less than par, depending on the number of unpaid coupons and the magnitude of the ( negative ) coupon rate. these alternatives have different tax implications, as discussed in a recent report by the danish mortgage bankers. 6 as one can imagine, these alternatives require a great deal of coordination and legal work to implement. one legal issue is whether, in the case in which bonds are to be redeemed for less than par, the bonds qualify to be used as collateral in various central bank or private arrangements that require collateral ; another is whether the decrease in the par value of the bond might trigger a default that would require a writer of credit default swap protection to make payment to the holder of the swap. these and similar operational problems ( including the difficulty of modifying security depositories and clearing and settlement systems to manage the calculations and transfers associated with negative rates ) can presumably be solved in time. however, they represent expensive transition costs for those people and institutions that must deal with them as rates move from positive to negative. 3. economic frictions there are many zero interest rate conventions in society : negative nominal rates, but not negative real rates, reverse the incentives to exploit these conventions. the problem is that the conventions evolved for a positive interest rate environment, and efforts to reverse the direction of these incentives can lead to bad economic outcomes for society. furthermore, it is costly to change these conventions. in many economic arrangements, including debt and tax payments, people can prepay debts or tax obligations, or make excessive payments on them, and earn a zero return during the prepayment period. for example, suppose that one holds a credit card under existing u. s. rules : one can withdraw funds from an account that is earning a negative rate, and pay one ’ s kenneth garbade and jamie mcandrews, “ interest - bearing securities when interest rates are below zero, ” liberty street economics blog, may 4, 2015. “ negative interest rates on mortgages ” working group on negative interest rates on mortgages, business and growth ministry, denmark https : / / www. evm. dk / ~ / media / oem / pdf / 2015 / 15 – 04 – 28 - negativerenter. ashx. bis central bankers ’ speeches debt to the credit card company in advance of when it is due,

the usa still faces large current - account deficits of up to 5 per cent of gdp. by definition the counterpart of a current - account deficit is a savings deficit. the interesting aspect in the usa ’ s case is that since 2000 the federal budget has swung from a surplus to a deficit of around 3½ per cent of gdp, so that the savings deficit no longer relates to the private sector, but primarily derives from the public sector. this is reminiscent of the situation that in the 1980s was termed “ the twin deficits ” : the current - account deficit is “ twinned ” by a large government deficit. especially international organisations and european economists have begun to describe these deficits as a structural problem for not only the usa, but also for the global economy. the americans apparently do not consider this to be a fundamental problem. from a european viewpoint, a particular concern is that if this development continues the dollar may fall substantially, thereby hampering european exports and making a further contribution to the slowdown in europe. higher savings in the usa will create other problems, however. the classical solution to this deficit problem is, as in denmark ’ s case in the second half of the 1980s, a strong tightening of economic policy and thereby a reduction of domestic demand. however, if the usa were to follow this course today, this would exacerbate the international problem of excessively weak demand, and thereby growth. how is demand to be stimulated? neither japan nor europe are making any significant contributions to growth in current years. the development in asia, which seemed so promising in 2002, is now subject to uncertainty because nobody really knows whether sars will cause growth to be seriously undermined. all over the world, people are hoping that the economic upswing will come from the usa. to paraphrase a central - banking term, the usa has the role of the world ’ s “ spender of last resort ”. the danish economy is not particularly “ european ” in current years, in terms of the situation in the euro area. from 1994 to 2000, denmark ’ s economic development was sound, unemployment was reduced, and a favourable current - account surplus was achieved. concurrently, the development in prices was moderate. growth has been a little weaker in recent years, however. nonetheless, the reduction of unemployment achieved in the second half of the 1990s has not been jeopardised. public finances and the balance of payments continue to show sound surpluses. danmarks nationalbank has therefore characterised the