Financial repression, west and east

The FT has an article by their Beijing correspondent, Simon Rabinovitch, saying┬áthat Chinese customers are getting angry about the big banks’ ever growing profits, which are in part at the expense of depositors who receive a negative real interest rate.

This may be so but it’s no better in the market-oriented west. The big British banks are not controlled by the British government (which has emergency stakes in a couple of them) but the very low interest rate policies of the Bank of England create the same outcome as in China – or worse.

The typical deposit rate on a basic savings account in the UK is 0.5%, while inflation in February was 3.4% (down from 3.6% the previous month). You can get up to 3.0% with online accounts, most of which limit the number of withdrawals. But you’re still losing in real terms.

In China the regulated deposit rate is 3.5% and inflation in February was 3.2%, down from 4.5% in January, so depositors are just in the black.

So financial repression – which is what economists call the process of extracting resources from households’ savings by keeping real interest rates down – is more effective in the UK than in China.

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