Monetary interest as defined by the Court in Siga-an v.

Villanueva as a
compensation fixed by the parties for the use or forbearance of money. State
Investment House, Inc. v. CA has also guided us in our classroom discussion to view
monetary interest as the cost of money. The sum earned through charging interest
rates is undoubtedly one of the reasons why money lending businesses thrive. Profit
is expected and earned not by gratuitous lending. Our banking institutions operate
in such manner. This practice of providing for interest rates is also common among
the commercial transactions of ordinary individuals. Come to think of it, negative
interest rates is an alien concept in Philippine commerce. At the very least one may
part with his money with the expectation of being paid the same amount, nothing
less. No less than the author of the article said that negative interest rates were a
theoretical curiosity. However, this idea is not but just a theory anymore. The
European Central Bank, the Swedish Riksbank and the Swiss National Bank have all
made the unconventional move in applying negative interest rates. Most recently
the Bank of Japan has already adopted such policy. Notably, these central banks
have formidable reputations in the global financial system and yet they have taken
the lead in venturing the unknown. The idea behind dragging interests rates in the
negative zone is to induce banks and individuals either in withdrawing their
deposited money or encourage borrowing with the expectation that more money will
be put into circulation and in turn induce the increase of an economys inflation
rate. In another news article (BOJ introduces negative interest rate to boots
economy, Manila Bulletin, January 29, 2016), it is hoped that applying negative
interest rates will encourage commercial banks to lend more, rather than keeping
cash at the Bank of Japan, and stimulate investment; there is also that aim to end
a long spell of deflation, or falling process, that is thought to be discouraging
corporate investment. By introducing negative interests rates, depositors are
actually charged in parking their money in such financial institutions adopting this
policy, which is diametrically opposed with the general idea of placing money in
banks not only for safe keep but also for it to gradually increase as it acquire
proceeds from interest. But the upside of this financial scheme benefits those who
would borrow from banks; negative interests will allow borrowers to borrow money
from banks with the obligation to pay back the borrowed sum at a discounted rate
when their loans mature. Perhaps this is why it is thought that taking out money
from banks will be encouraged, money which will eventually make its way into the
market for circulation. Interestingly though, the Wallstreet Journal reported, that
following the Bank of Japans decision to lower interest rates below zero in January
of this year, many consumers have reportedly rushed to hardware stores in search of
safes. (As cited in http://fortune.com/2016/02/23/japans-negative-interest-ratedriving-up-safe-sales/ Febuary 23, 2016). In the same article it was even mentioned
that other savers are considering more unconventional storage spaces: with elderly
people who are thinking of keeping their money under a mattress. It may sound
comedic or it could be a kneejerk reaction to this financial development but this
somehow sheds light on how people perceive the role of banks in their lives.
Meanwhile, Mark Carney, the governor of the Bank of England, is currently opposed
to the idea of entertaining negative interest rates. Explaining his opposition to the
issue, [he] pointed to the impact it would be likely to have on lenders' profits. A
common criticism of negative rates is that the cost of leaving deposits at the central
bank is borne by other banks and building societies, which are compelled by
convention not to charge their own savers. Reference rates that dictate the interest
margins on mortgages and other loans would also fall.
(http://www.theweek.co.uk/interest-rates/64116/why-negative-interest-rates-wonthappen-here, February 24, 2016) Other economists or financial analysts see the
advantages of negative rates when allowed to persist long term. We have yet to see
the real impact of negative interest rates for those states which adopted such
policy.

Is the Philippines ready in adopting negative interest rates given the theoretical
outlook and foreign precedents of such policy?
I am inclined in answering in the negative. Although there is no statute proscribing
for negative interests, there is still much to look into before entertaining the idea of
adopting such policy. Foremost, we look into the financial behavior of Filipinos.
According to the results of the recent annual Consumer Financial Survey of the
Banko Sentral ng Pilipinas, the Philippines remain a consumer-spending driven
economy. (http://www.quickloan.com.ph/articles/filipinos-spend-money/) In a way,
the Filipinos themselves help prop up [the] economy through their ways of
spending. The survey reported that the average income of a common Filipino family
stood at P20,000. But while the bulk of the household income is expended on
consumer goods, it also reflected that, on an average, a Filipino family still allot 6%
of its income to bank savings. For some economies one of the objectives in
welcoming below zero interest rates was to induce domestic spending. A
commentary in Bloombergs QuickTake even commented that others want to push
foreigner to move their money somewhere else. This is the same sentiment in
Japan: Consumer spending fell 4.4 percent in December from a year earlier, as
households chose to save rather than splurge on any gains from the low oil prices
that are slowing inflation. It was the fourth straight month of year-on-year declines.
xxx
The aim is to end a long spell of deflation, or falling prices, that is thought to be
discouraging corporate investment. But while corporate profits have soared as
massive stimulus weakened the Japanese currency, making earnings made abroad
worth more when converted into yen, investment and wages have lagged.
(http://www.mb.com.ph/boj-introduces-negative-interest-rate-to-boost-economy/,
January 29, 2016) It is safe to say that we are not experiencing the same situation
domestically. Another contributing factor in this self-sustained growth is the hefty
remittances of overseas Filipino workers which induce domestic spending in
consumer goods and services. In addition, the government policy for the past
administrations has consistently been to attract foreign investments. Foreign
investments have been a significant driving force in our economy and it is unlikely
that the government will put up a financial policy that would discourage
participation from big investors coming from the outside. The government has even
been generous in providing for investment incentives for multinational companies
that will hopefully generate jobs for many Filipinos. Not to mention the hype driven
by the latest APEC Summit wherein the government is optimistic in forging
transnational business opportunities.
On another topic, the Banko Sentral ng Pilipinas has imposed quite a steady 4%
interest rate in money lending for almost 20 years. And although there have been
dramatic rising and falling of our countrys economy in recent history, manipulating
interest rates has not been resorted to in trying to induce growth in the economy. In
the last 6 years, our economy has performed well in terms of GDP growth, with its
lowest at a 3.7% growth. The GDP growth for 2015 was at 5.8%; this figure being
slightly higher than what has been predicted internationally. This leads us therefore
to attribute our economic gains or effort in keeping our economy afloat to some
other factors.
The banking industry has proven to be a lucrative business in our country with the
competition among these financial institutions ever growing. Banks have sprouted
left and right trying to win depositors through enticing financial offeers involving
positive interest rates. It is fair to assume that these activities did not flourish had it
not been for the profit earned via payment of interests, or other charges for the use
of money invested by other depositors, and where banks or lenders would stipulate
or agree on monetary interest rates that are rigorously lucrative. And thus we go

back to the definition provided by our Court that monetary interest is paid by one
party to another as the cost of money lent. Personally, I dont see Filipinos easily
entertaing the idea of negative interest rates because the general idea of banking
operation is for people to have the option in putting their money in a safe place
while potentially earns albeit slowly this being an alternative to other active
investment opportunities.
The acceptability or perhaps feasibility of negative interest rate becoming a
financial policy in the Philippines can be seen not only through credit lending
activities. Other economic forces and state endeavors/objectives, albeit foreign
experiences, can help us ascertain the viability of or need for negative interest rates
in the Philippine setting.