How much does money cost in different countries

2024 Author: Seth Attwood | [email protected]. Last modified: 2024-01-16 18:34

The key rate is the percentage at which a country's central bank lends money to commercial banks. Why does this percentage reach negative values in the countries of the "Golden Billion", and in the countries of the periphery of world capitalism, to which Russia belongs, takes the maximum value?

For some time now, the term "key rate" has flashed in the headlines of journalistic publications. We are talking about the key rate of the US Federal Reserve System. The FRS rate has been in the range of 0-0.25% for several years. At this rate, money in the US economy turns out to be almost free. In September, the Fed was close to raising the rate, but still did not. Finally, on December 16, 2015, for the first time in more than nine years, the US Federal Reserve raised the rate by 0.25 percentage points.

At the end of April 2016, at a meeting of the Federal Reserve Board, there was another discussion of the issue of a possible change in the rate, but it was left at the same level of 0.25-0.50%. By the way, Donald Trump, during his election campaign, drew attention to the fact that an increase in the Fed's key rate could lead America to default. IMF Executive Director Christine Lagarde also fears the consequences of such an increase, but she says that it could lead to a collapse of the global economy.

In Russian, along with the term “key rate”, the terms “target rate” and “base rate” are used as synonyms. In short, this refers to a certain benchmark set by the country's central bank. Based on it, the participants in monetary relations set their own interest rates on loans, deposits, and securities. In the documents of the International Monetary Fund (IMF), this benchmark is called The Central bank policy rate (CBPR). Literally - "the policy interest rate of the central bank." However, there is no uniformity in understanding what the “key rate” is, and, accordingly, there is no complete comparability of CBPR indicators between countries. In some countries, the “key rate” coincides with the “discount rate”, “refinancing rate”, “repo rate”, etc.

What exactly is the Fed's key rate? On the website of this institution, we read that this is the federal funds rate. American banks are required to keep a certain portion of their reserves in a centralized Federal Reserve fund - this portion is called federal funds. Their volume changes daily, and banks with surplus reserves can temporarily provide these surpluses to banks, the level of reserves of which has dropped below the norm. The rate at which banks lend is the key rate, or the federal reserves rate. The Federal Reserve's 12-member Open Market Committee votes to target the federal reserves rate based on economic conditions. Let me remind you once again that since December 2008 the rate has been in the range of 0-0.25%. The actual value of the rate determined every day at this time changed from 0.07% to 0.22%. There has never been such a low value of the rate, even during the years of the economic crisis of the 30s of the twentieth century. Federal reserve money is now virtually free. According to the FRS leaders, this should have helped the banks and the entire US economy to overcome the consequences of the 2007-2009 financial crisis. For comparison: in June 2006, the Fed's key rate after 17 consecutive increases (over two years) reached the maximum level of 5.25%. However, this is far from a record. The highest level of the rate was recorded in 1980-1981, when Paul Volcker took the helm of the Fed and America began to switch to the "Reaganomics" rails. Then the rate rose to 20%.

Although the federal funds rate applies only to short-term loans between banks, it is the base rate that determines the cost of loans to businesses and individuals. In American banking practice, the concept of "preferred rate" is widely used, which is assigned by commercial banks for the best clients. It is used to determine the interest on car loans, loans for small business financing and lines of credit secured by residential real estate, credit cards. Traditionally, the preferred rate has been three percentage points higher than the federal funds rate, and banks almost automatically (with a few exceptions) follow the Fed's changes. When the federal funds rate was raised by 0.25 percentage points in June 2006, many banks raised their preferred rate by the same amount. And when in December 2008 the rate was lowered by 0.75 percentage points, banks lowered the preferred rate from 4 to 3.25%. She stayed at this level for exactly 7 years. Presumably, starting from the new year, American banks will set their preferred rate at 3.50%. Even such an increase in interest rates on loans can destabilize the economic situation in the United States. The total volume of private debt of Americans on loans is currently 17 trillion. dollars, with 82% - mortgage debt, and almost 8% - debt on student loans. The rest is credit card debt, car and consumer loans, etc. The spending of Americans today is 2, 5-3 trillion. dollars per year exceed real income. There is a threat not only of repayment, but even of servicing and refinancing such huge debts. A no less alarming picture is emerging with regard to the corporate debts of the American economy.

How do the Fed's key rates compare to other countries? The IMF is trying to make such comparisons for about six dozen countries. Fund reviews include both the leading Western countries ("golden billion") and the periphery of world capitalism (PMC). These are the developing countries of Asia, Africa, Latin America, as well as new states that have emerged in the post-Soviet space. The picture for the two groups of countries is very different. Below are tables for two groups of countries, compiled on the basis of the IMF surveys for the period 2007-2014.

Tab. one.

Key rates of the leading Western countries in the period 2007-2014 (average annual values,%)

The country	2007	2008	2009	2010	2011	2012	2013	2014
USA	4, 25	0, 13	0, 13	0, 13	0, 13	0, 13	0, 13	0, 13
Eurozone countries	4, 00	2, 50	1, 00	1, 00	1, 00	0, 75	0, 25	0, 05
Great Britain	5, 50	2, 00	0, 50	0, 50	0, 50	0, 50	0, 50	0, 50
Canada	4, 25	1, 50	0, 25	1, 00	1, 00	1, 25	1, 25	1, 25
Switzerland	3, 25	1, 00	0, 75	0, 75	0, 25	0, 25	0, 25	0, 25
Sweden	3, 50	2, 00	0, 50	0, 50	1, 91	1, 14	0, 75	0, 00
Denmark	4, 00	3, 50	1, 00	0, 75	0, 75	0, 00	0, 00	0, 00

The data in Table 1 indicate that in the economically developed countries of the West over the course of eight years (starting from 2007), there has been a consistent decrease in central bank interest rates. The process went so far that in two countries (Denmark and Sweden) the rate became zero, i.e. central banks actually began to lend money to commercial banks free of charge. And in the eurozone countries, the rate in 2014 came close to zero.

Attention is drawn to such a feature of the interest rate policy of the central banks of developed countries, as the stability of key rates. For example, the average annual key rate of the US Federal Reserve System was kept at the same level for eight years - from 2008 to December 2015. The Bank of England has kept the interest rate at the same level for almost seven years (since 2009).

In the group of developed countries, most central banks kept rates at a level not exceeding 1%. The highest interest rates in this group were recorded in Australia (2, 50%) and New Zealand (3, 50%).

Tab. 2.

Key rates of some countries of the periphery of world capitalism in the period 2007-2014. (average annual values,%)

The country	2007	2008	2009	2010	2011	2012	2013	2014
Congo	22, 50	40, 00	70, 00	22, 00	20, 00	4, 00	2, 00	2, 00
Ghana	13, 50	17, 00	18, 00	13, 50	12, 50	15, 00	16, 00	21, 00
Chile	6, 00	8, 25	0, 50	3, 12	5, 25	5, 00	4, 50	3, 00
Brazil	11, 25	13, 75	8, 75	10, 75	11, 00	7, 25	10, 00	11, 75
Indonesia	8, 00	9, 25	6, 50	6, 50	6, 00	5, 75	7, 50	7, 75
Belarus	10, 00	12, 00	13, 50	10, 50	45, 00	30, 00	23, 50	20, 00
Kazakhstan	11, 00	10, 50	7, 00	7, 50	5, 50	5, 50	5, 50	5, 50

We observe a completely different picture in the group of countries on the periphery of world capitalism. In many countries, the average annual interest rates of central banks are sometimes measured in double digits. A record value was reached in Congo, where in 2010 the figure was 70%. The central bank of this country was engaged in lending to banks at an openly usurious interest rate. The average interest rates of the countries of the periphery of world capitalism are more than an order of magnitude higher than the average interest rates of the countries of the "golden billion".

Another feature of the PMK countries is the volatility of interest rates. Within one year, there may be sharp rises or falls in rates. For example, in the Republic of Belarus in 2010 the average annual rate was 10, 50% (which in itself is a very high value), and the next year it jumped to 45%, that is, more than 4 times. And in the Congo, on the contrary, in 2011-2012. there was a sharp decrease in the interest rate from 20 to 4%, that is, five times. From presented in table. In seven countries, the most stable interest rate was in Chile. Although in this country in 2008-2009. there was a sharp transition from the level of 8.5 to 0.5%, and the next year there was an increase to 3.12%.

Tab. 3.

Ranking of countries with the lowest key rates (2014)

Place, no.	The country	Average annual rate,%
1-2	Denmark	0
1-2	Sweden	0
3	Bulgaria	0, 02
4	Eurozone countries	0, 05
5	USA	0, 13
6-8	Switzerland	0, 25
6-8	Israel	0, 25
6-8	Saudi Arabia	0, 25
9-10	Great Britain	0, 50
9-10	Bahrain	0, 50

Table 3 shows countries with minimum interest rates. With some exceptions, these are the countries of the “golden billion”. The group of leaders is actually not 10 countries, but 28, since the eurozone includes 19 member states. Thus, in the group of leaders from 28 countries, 24 belong to the "golden billion".

Other countries from the group of leaders are Bulgaria, Israel, Saudi Arabia and Bahrain. Interest rates are abnormally low in Bulgaria, one of the most economically backward countries in Europe. Moreover, this "anomaly" arose back in 2008-2009, when rates fell from 5.77 to 0.55, and a year later - to 0.18%. As for Israel, its interest rates in previous years were comparable to those of European countries (they were in the range of 1, 0-2, 5%). Saudi Arabia and Bahrain are oil-producing countries where interest rates have traditionally been low.

We have presented a comparative picture of interest rates for 2014. And here is what the picture looked like at the end of 2015: ECB - 0.05% (basic refinancing rate); National Bank of Denmark - 0, 50% (rate of financing the liquidity deficit); Swiss National Bank - 0.05% (lending rate). And at the Central Bank of Sweden, REPO operations received a negative rate - minus 0.35%. According to the latest data, the key interest rate in Denmark has already dropped to minus 0.65%. The transition of central banks to the minus zone is a symptom of the fact that classical capitalism with its bank interest is becoming a thing of the past.

Tab. 4.

Rating of countries with the highest key rates (2014).

Place, no.	The country	Average annual rate,%
1	Gambia	22, 00
2	Ghana	21, 00
3	Republic of Belarus	20, 00
4	Tajikistan	18, 70
5	the Russian Federation	17, 00
6	Suriname	12, 50
7-8	Mongolia	12, 00
7-8	Sao Tome and Principe	12, 00
9	Brazil	11, 75
10	Belize	11, 00

Table 4 presents a ranking of the top 10 countries with the highest interest rates. Some of these countries were in the top 10 in previous years. Among the permanent "leaders" are Ghana, the Republic of Belarus, Tajikistan. Thus, the Republic of Belarus in 2007 ranked 13th in the ranking. In subsequent years: 2008 - 10th, 2009 - 5th, 2010 - 1st, 2011 - 1st, 2012 - 1st, 2013 - 1- e.

Russia also periodically falls into the top ten "record holders" in terms of interest rates. On April 29, 2016 (two days after the Fed meeting, at which the key rate was left unchanged), the Central Bank of Russia also decided to leave its rate at the previous level of 11%. Russia on this indicator is currently at the level of Belize and slightly below the level of Brazil in 2014. The Central Bank of Russia periodically makes statements about a possible reduction in interest, but this does not happen. As a result, the Russian economy suffers from monetary suffocation.

With double-digit key rates of central banks, interest on bank loans to individuals and legal entities in countries of the periphery of world capitalism (PMC) turns out to be usurious. They stifle the population and the economy, push the PMK countries to attract foreign capital and loans. Ultimately, there is an increase in external debts and an increase in the dependence of the IGC countries on the countries of the "golden billion" with their cheap or almost free money.

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