Why won’t monetary policy just work as designed? It sounds so utterly simple:

To review: Interest rates are the price of lending and saving money. When interest rates throughout the economy are low, banks charge less for loans and individuals have less incentive to save; when they’re high, lenders charge more and individuals save more. This is why central banks tighten interest rates when they’re worried about inflation: Discouraging loans and encouraging individuals to sock their money away slows economic activity, which keeps inflation in check. Conversely, cutting interest rates in a recession encourages credit and consumption, which boosts job creation.

If interest rates could go negative — and banks started charging people for depositing their money — then this logic extends out: Not only would we be encouraging people to save less, we’d be actively penalizing them for saving rather than consuming.

This is the cartoonish version of money and banking that is usually sketched out on the chalkboard of any Economics 101 class. The real world, however, looks something like this:

But even after that, the author makes this stunning claim about howBoJ’s NIRP & QE repackaging might actually work:

One reason to think the Bank of Japan’s gambit could help is that a lot of actors in the economy can’t really “stuff money in the mattress” in practice. Big financial firms and corporations and the like are dealing with huge sums of money parked in all sorts of wild financial instruments. In many cases, turning those holdings into cash and thus escaping the bite of negative interest rates will just be prohibitively difficult and expensive. So they may well eat the cost of the negative interest rates, and respond to the incentive the way the Bank of Japan hopes they will. This may explain why the negative interest rates from the ECB and others haven’t resulted in dysfunction.