Negative rates and hoarding cash

I thought this was interesting, instead of paying the banks to keep their money company's are considering storing enormous sums of cash in vaults instead. I believe this is NOT the intended purpose behind negative rates in the first place, right?


"The idea of keeping piles of cash in high security vaults across Europe may sound like something out an old movie plot, but some banks and insurers have recently started considering the idea as interest rates sink below zero across much of Europe.

Europe's highways are not yet jammed with guarded trucks transporting money to top secret locations, but if it becomes financially sensible for banks to hoard cash as rates are cut even further, the practice could undermine central banks' ability to use negative rates to boost growth.

After the European Central Bank's most recent rate cut in March, private-sector banks are paying what amounts to an annual levy of 0.4 per cent on most of the funds they keep at the eurozone's 19 national central banks.

This policy, which has cost banks around €2.64bn since ECB rates became negative in 2014, is intended to spark economic growth by incentivising banks to lend money out to businesses instead of holding on to it.

European central bankers say they could cut rates again should economic conditions worsen, but private bankers and insurers are already thinking of creative ways to avoid those charges altogether..."

https://www.cnbc.com/2016/08/16/banks-look-for-cheap-way-to-store-cash-piles-as-rates-go-negative.html

They might actually think about investing it.

As jatki99's post points out the article is addressing dealings between banks and insurance companies with the European Central Bank (ECB), . . . not Mom-and-Pop operations or individuals. Normally Central Banks alter interest rates charged such commercial enterprises to stimulate an economy by lowering rates or to slow-down inflation by raising interest rates.

Since the Eurozone economy has been dragging the ECB lowered rates to near-zero. But still nobody's borrowing. So the ECB has lowered rates to below zero to "force" the banks to make loans or lose money.
The banks don't care for this, and the alternative is to hold the money oneself at zero-interest in the form of paper cash. So long as the costs of storage don't exceed the negative-interest they'd otherwise have to pay the ECB they're ahead.
It's already worse in Japan. [The Japanese economy is likely to never fully recover anyway, because of awful demographics - too many old people. But that's another story . . .]

However, if/when things get "bad enough" individuals may be affected. If a European individual really wants a safe investment he can now purchase slightly-negative Government bonds, i.e. the holder must pay the borrower who issues the bond a periodic fee. In Japan too. This seems stupid. [Actually it is stupid.] It amounts to "paying" for the safety of a solid Government bond, instead of receiving interest on the money loaned to the Government. [And if interest rates were to get even more negative, one could possibly make a profit as the value of one's old less-negative bond rose compared to newer more-negative bond. But that's another story . . .]

Ahh, . . . but there is another option for the wily citizen, . . . follow the lead of the Banks/Insurers in jatki's original post. Just accumulate cash, preferably in the form of $500-Euro-bills in Europe or $100-bills in the USA - if/when negative rates arrive in the USA - and store it at home.
The Governments [and Central Banks] involved do not care for this solution; . . . there's no money in it for them. So they have an option too - remove all $500-Euro-bills and $100-bills from circulation, thereby making holding large quantities of cash more difficult. These options are presently under discussion in Brussels and Washington, DC.

For the record, poor old DonDiego doubts he'll ever accumulate sufficient quantities of $100-bills to be concerned, but, . . . HEY ! . . .it's the principle.
The entire idea behind the existence of Central Banks, aside from enriching the Central Bankers, is to c-o-n-t-r-o-l the citizens by c-o-n-t-r-o-l-l-i-n g the Country's currency. Instead of allowing normal economic market forces to determine the economic outcomes and the currency's value.
It's why Andrew Jackson abolished the US Central Bank when he was President; it is unlikely to happen again. These times are what is now known as the Good Old Days.

It has been reported that upon surrendering his Flag to the victorious Americans at Yorktown, General Cornwallis had the band play "The World Turned Upside Down" .
Perhaps it is time for a reprise.

Don Diego is a wise man

I read once that in the land of blind morons, a one eyed fool would be king.

It's a shame there isn't a street somewhere where common folks could buy shares in profitable companies and get returns on their money. Where people could pool their money for their mutual good.
If one chooses to hide their money under the mattress, I recommend Tom Cook travelers checks. Because shit happens.

OR maybe it's the principal!

Whether travelers checks are superior to negative-rate bonds depends on the price of the travelers checks.

Actually poor old DonDiego subscribes to billryan's philosophy, . . . most of the time. And even now. So far this year poor old DonDiego is easily having his best year ever with his stock market picks; he's even been taking some profits and buying back into the same company so's he can split his capital gains into chunks not so big as to raise his tax-bracket in a single year. Life is good. Back when "Brexit" was a-goin' on DonDiego even documented his purchase of AMGN right here on this LVA Forum, . . . it's popped $30 !

But "customers" of a Central Bank don't have much choice. And those seeking the safety-above-all-else Government or even corporate bonds, . . .think a Japanese retiree, . . . have to face up to, at best, low-interest investments.

Since we’re talking about hoarding cash, a while back I spent some money that I had set aside for groceries and half the rent buying rounds for the guys.

Can anyone name that song?

How much did I spend?

DonDiego knows the song:

The Milwaukee Polka by Frankie Yankovic

That was a nice call on AMGN, I bought NSC that same day and it's had a nice pop since then as well. It pays almost 3% and I bought that as a stuff away stock ,don't plan on touching it for 15-20 yrs. As usual let the dividends reinvest themselves during that time. Unfortunately I bought a clunker on that day as well, as my acct. said over beers one day, nobody likes talking about there clunkers, just the good ones.