Dig it down ... atleast I would.
If you don’t trust that sort of stuff then the gold standard is totally irrelevant anyway.
If it is true, I wonder if similar laws exist in other countries.
Perhaps everyone will consider working less when your excess fiat has so little value.
How else would interest rates be set? If you want your money to grow all by itself just because you deposited in an account with an interest rate, how does that interest rate get decided if not by someone in an office? Someone, in an office, whatever tools they use to decide, has to make that decision, surely.
This is a good way to blow up a bank.
It is, and it’s difficult. Perhaps fundamentally impossible, given it would have to predict consumers’ tastes and preferences to estimate B2C companies’ creditworthiness.
Rates are negotiated instruments, a combination of the return on safe assets today, the risk of that rate changing tomorrow, and the credit profile and availability of borrowers. There is no known algorithm which can robustly balance these variables. If it were discovered, it would be worth billions, perhaps more, and fundamentally change finance. Pretty much every crisis has a story about smart people thinking they’ve solved this problem in some narrow niche of the economy and then being shown disastrously wrong.
It can't be done by one individual for the whole market, but the invisible hand does a pretty good job. The principle of a market as a whole establishing prices, rates, etc. is widely accepted.
The only way banks could pay a higher interest rate would be to bear more risk, but that's how you get a banking crisis.
Lots of interest rates are influenced by markets, where lenders and borrowers base their activity on available rates (if no one borrows at a given rate, a lender may seek business by reducing the rate...).
Also the TIBOR and LIBOR and all the other *IBORs aren’t set by the government either. Certainly government monetary policies affect these rates, but ultimately it’s a free market function.
Having the government directly set private lending rates is a very bad idea and would certainly result in disaster (much like how all other price controls are terrible ideas).
Under normal conditions, they have an extremely strong influence on medium term interest rates as well by convincing the market that they will keep short rates high(low) in the future, while will then raise(lower) medium terms rates.
If that proves inadequate, like it did after the crisis, the Fed can buy and sell bonds directly to move medium to long-term interest rates.
The Fed may have a historical preference for relying on the first mechanism alone, but through some combination of these techniques, they can set any interest rate to any reasonable value almost at will.
By a free market, the same way it was set for a very long time. It gets decided by how many people borrow at a given rate, which will typically raise or lower the rate. Some one will make small adjustments around the broader market rate; if enough people make those small adjustments in one direction, the range moves.