Negative interest rates and Islamic finance

Negative interest rates are a phenomenon, which attracts the attention of many economists. Several world currencies are affected, for different reasons. Currencies such as Swiss franc or Danish krone have an appreciation potential, and the central banks try to discourage the speculators from taking long positions in their currencies (CHF, DKK). Other central banks aim at restoring “normal” conditions in the economy, meaning inflation at about 2% and no deflationary slowdown in the aggregate demand and production (EUR, SEK). The goal of this paper is to identify the reasons for implementing negative interest rates in selected countries. Next, we observe that economic conditions in Islamic countries are quite different. Major groups of Islamic instruments used by central banks are discussed. We conclude that most of them are not suitable for achieving negative profit rates (or systematic losses), but if for any reason (e.g. fixed exchange rate to US Dollar) the negative rates had to be implemented, it is feasible, e.g. by wadiah (safekeeping).