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The pound fell to a four-month low against the euro today after Bank of England Governor Mervyn King said he could follow Sweden's example in cutting how much he pays in interest to commercial banks who park their cash with the central bank.
Cutting rates, currently at 0.5%, would be designed to increase banks' lending to each other and to corporate customers.
"Of course people have talked about whether it would be sensible to reduce the rate at which reserves are remunerated and it is something which we are looking at," King said.
"Above a certain level you can change the rate at which reserves are remunerated. This may be a useful supplement; we'll think about it. But it's not going to be a major change."
He said such a move would "perhaps make the banks work a little bit harder to try individually to convert some of those reserves into other assets".
In Sweden, the Riksbank cut its reserve deposit rate to minus 0.25%, effectively charging banks to stash cash at the central bank.
There is concern in the UK that the £175 billion which the Bank has injected through quantitative easing has actually ended up being hoarded by banks rather than flowing into the wider economy.
But King said he was seeing early signs that it had begun to work on improving money supply .
The euro rose 0.49p to 88.65p while the pound was down 1.13 cents against the dollar at $1.6471.
