We usually understand interest rates from a very simple story "you went to a bank ans asked to borrow money, the bank agrees but requires you to return an extra amount be the end of the loan term, this amount is called interest". Obviously, it would make no sense for the bank to ask you to return less money, and if that was the only acceptable condition for you the agreement would simply not be signed, hence the hypothetical negative rate in this transaction would be a practical impossibility.

In a better explanation involving investments, one might say that "negative real-interest" is when the nominal interest rate is less than the relavant inflation rate associated with the currency of the transaction. Also simple to understand in laymen terms: "You invested 100 monetary units to the bank, that promised returning you 110 monetary units after a time period. You could have bought a nice dinner at your favorite restaurant with 100 monetary units by then, but when you received back the 110 monetary units, the dinner now costs 120 monetary units, thus making it a better deal to eat the dinner than than to invest the money".

**But how would one explain the mechanics of nominal negative interest rates? **

Do they imply banks get charged for their compulsory deposits? Can't they circumvent this deposits by lowering their leverage?

There is also the overnight market, do banks get paid to borrow money in the overnight market? Then why not borrowing all the time? Does a negative interest rate causes the central bank to lose control of the overnight market? Or does it have to provide liquidity for all banks by itself?

We hear about countries like Japan and Switzerland (or even Germany) do the central banks for this countries auction bonds with fixed value at maturity? Are those actually acquired above the maturity value? Why would anyone make such investment? (Maybe to use the currency as a hedge, but wouldn't acquiring the currency be more effective?)

Some countries issue bonds whose value increases daily based on the target (central bank defined) overnight interest rate. This kind of bond is usually negotiated with very small discount/premium. Are bonds like these issued by countries with negative nominal interest rate? If so, why would anyone buy them?

I've seen this question by An old man in the see and also this one, where one nice answer discusses the convenience of electronic vs. paper money, yet this does not make a larger scheme of the negative rate a practical idea to me.

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    $\begingroup$ Governments issue bonds and bills, rather than central banks (outside quantitative easing). For example you might buy one for €1001000 and three months later the government sends you back €1000000. And you might prefer this to your bank charging you €15 a day to hold your €1000000 deposit or charging you more to let you leave an insured €1000000 in cash in their safe $\endgroup$ – Henry Nov 11 at 23:25

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