Why are central bankers suggesting negative interest rates?

The central bank is trying to stimulate the economy by encouraging banks to lend money and people and businesses to borrow money. Lowering the base interest rate almost to zero has not worked. Quantitative easing has not worked despite increasing dramatically the amount of money commercial bank have in their reserve accounts at the central bank.

So, in desperation, some have suggested that they try negative interest rate. By this they mean that banks would have to pay interest on the money they keep in their reserve accounts at the Bank of England.

The rational given for this is that it will encourage banks to lend these reserves instead of 'hoarding' them. This reveals a misunderstanding of reserve banking. Bank cannot easily lend this money, except to each other, as reserves can only move between reserve accounts, and only banks and the government have reserve accounts. The only way that reserves can actually leave the bank of England is after conversion into notes and coins. This is unlikely to be much of a stimulus given that they notes and coins form such a small proportion of the money supply. Banks would probably choose just to hang onto the notes in any case since at least they don't pay interest on them. It would be good times for potential bank robbers as mountains of cash accumulated in bank vaults.

Another way that banks can get rid of reserved and so avoid negative interest rates is to buy assets from the government/central bank which is pays with using reserves. This is like reverse quantitative easing so would presumably be resisted by central banks. It does however suggest a mechanism of reversing quantitative easing which could be useful in future.

Rather than increasing demand, what negative interest rate would do is act as another tax, further reducing demand. I have already pointed out that quantitative easing, where the central bank buys interest bearing securities from the private sector, is effectively tax because it diverts interest income from the private sector (who previously own the securities) to the government/central bank, the new owners of the securities. A negative interest rate on reserves has the same effect since (private) banks would be paying interest to the central bank which then remits it to the government, as it does all its profits. Not so clever.