In his role as investment manager at PGGM, which invests on behalf of pension funds, Wilfried Bolt is required to convert some of his portfolio into ‘risk-free’ government bonds, he told his audience. That these days you pay interest on these products, rather than receive it, is of minor importance. But for those present with a balance in the black, of whom there were more than he expected in a hall full of students, this requirement obviously doesn't apply. As long as stock prices are rising, it is therefore wise to put your money in shares. Especially now, with the interest rate on savings offered by commercial banks almost at zero. On a savings balance of more than a million euros, you are even required to pay interest.

The immediate cause of this curious situation, according to Bolt, is the policy pursued by the central banks, which charge their commercial counterparts for depositing funds with them. And this, in turn, is due to efforts to steer inflation in the direction of 2 percent, which is seen as being best for the economy. This, in the speaker's opinion, is not a realistic aim and is being driven largely by too short a memory: an exceptional peak in interest rates in the seventies and eighties has supposedly enabled monetary policymakers to lose sight of the fact that the average interest rate has been falling for the past seven hundred years, as he showed in a graph.

Banknotes in a safe

In short, the present situation may be unusual, but it is by no means unexpected. As Bolt concludes, another factor in all this is that less capital is needed in the wake of the third industrial revolution (that of the computer) than after the first and second (steam machines and electricity/combustion engines). Together with the changing demographic (an ageing population), this has led to today's low inflation and interest rates. The speaker agreed during the Q&A that as far as the ageing population is concerned, we should look to Japan, which leads the world in this respect.

And why do commercial banks still continue to hold their money with the central banks even though it costs them to do so? “You could instead hold that money in the form of banknotes in a safe, but that would cost almost as much as the negative interest. Besides, no one would insure it.”

The lecture given by Wilfried Bolt was organized by Studium Generale in cooperation with student investment club B&R Beurs Eindhoven.