Does a negative interest decrease the money supply?

Question

If there is less money, its value increases.
There is less liquidity when there is less money.
Does a negative interest decrease the money supply?

Especially when people don't need money: they saved it up but nobody needs it -- nobody needs to borrow it from them so they saved up for their pensions and now they want to buy a pension but nobody really needs their money. So a negative interest rate is established to entice them to spend it: a little late because they are buying pensions but OK. They are too old to spend it well. They think the washer will outlive them. So they leave the money in the incinerator of negative interest bank accounts. Then there is less and less money. Now somebody wants to sell something (liquidate it) but there isn't that much money there at the moment. It was burnt. The money becomes a kind of commodity that people are willing to pay more assets for. The asset price in currency is lower. People think, hey cool: Let as much people as possible have their money burnt so that my cash becomes more valuable. Run on the bank. But then it turns out that the CB really can print money...

Here's a story. I guess it can be what happened in the repo market recently.

Answer 1

Definition of Money Supply: The money supply is the entire stock of currency and other liquid instruments circulating in a country's economy as of a particular time. Because of it's definition, the money supply can only be affected if a central bank prints or burns currency. Thus, technically, rates don't affect it per-se.

Velocity of money and money in circulation: What you may be thinking of is related more with how much money is in circulation and how fast it changes hands.

Effect of negative rates: In theory, when rates go up, money flows into bonds and "leaves" circulation. By the same logic when rates go down, money flows out of bonds and "enters" circulation.