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I don't understand this argument that people feel safer storing cash than keeping it in a bank. The cash is just as ephemeral as bank credit. With the exception

I don't understand this argument that people feel safer storing cash than keeping it in a bank. The cash is just as ephemeral as bank credit. With the exception that it's controlled by your central bank instead of the commercial banks. Cash can be made useless centrally just as easily (if not easier because of its central nature) and there have been instances of this in the past in cash-only societies.[1] [1] https://en.wikipedia.org/wiki/Romanian_leu#Second_leu:_1947-1952 https://en.wikipedia.org/wiki/Romanian_leu#Second_leu:_1947-...

JumpCrisscross 11y ago
> Cash can be made useless centrally just as easily Most monetary economists would disagree. The zero bound on interest rates exists on cash, not bank deposits. From a central location, one can interrupt electronic funds transfers to and from certain persons or looking like this or that. You can't prohibit Iran from holding dollars in cash, though. To do so means threatening the systemic value of the currency. Cash forces an all-or-nothing constraint on the powers that be.
flatline 11y ago
By storing your cash in a bank, you are exposed to both the bank's insolvency and the devaluation of the currency by a central bank. By keeping it under your mattress, you are only exposed to the latter. Of course, by not storing your money in a bank, you are 100% responsible for securing it, which is the primary drawback that most people face. You are also more directly exposed to fluctuations in currency valuation since fiat is generally inflationary and the money is doing no work for you at home - but quite a few people still find it worth all the drawbacks to keep a chunk of cash at hand.
- lagadu 11y ago
  > By storing your cash in a bank, you are exposed to both the bank's insolvency Only for very large amounts, at least in Europe, the central bank insures your money from its own reserves in case of bank failure up to a certain amount, AFAIK typically in the hundreds of thousands of €/local equivalent.
  - flatline 11y ago
    If a bunch of banks go under at once, or even one big bank with a sufficient number of claims, who's to say the insurers will even be able to pay out on that? Nonetheless, I always find this type of apocalyptic thinking to be humorous - why do people think that their cash will be worth anything if the financial system collapses? Another motivation would be if you are concerned about having your assets frozen.
    - Symbiote 11y ago
      The central bank pays. As an example, in the UK personal deposits of a failed bank are guaranteed by the Bank of England up to £75,000. The Bank of England can always cover the amount, since they can simply print money as needed. http://www.fscs.org.uk/what-we-cover/products/banks-building-societies/ http://www.fscs.org.uk/what-we-cover/products/banks-building...
    - lagadu 11y ago
      It's not insurers who pay it's the central bank. It has control over the currency itself; because of that it can (and has to) always pay. > Another motivation would be if you are concerned about having your assets frozen. I'm with you on that one.

JumpCrisscross 11y ago

> Cash can be made useless centrally just as easily Most monetary economists would disagree. The zero bound on interest rates exists on cash, not bank deposits. From a central location, one can interrupt electronic funds transfers to and from certain persons or looking like this or that. You can't prohibit Iran from holding dollars in cash, though. To do so means threatening the systemic value of the currency. Cash forces an all-or-nothing constraint on the powers that be.

flatline 11y ago

By storing your cash in a bank, you are exposed to both the bank's insolvency and the devaluation of the currency by a central bank. By keeping it under your mattress, you are only exposed to the latter. Of course, by not storing your money in a bank, you are 100% responsible for securing it, which is the primary drawback that most people face. You are also more directly exposed to fluctuations in currency valuation since fiat is generally inflationary and the money is doing no work for you at home - but quite a few people still find it worth all the drawbacks to keep a chunk of cash at hand.

lagadu 11y ago
> By storing your cash in a bank, you are exposed to both the bank's insolvency Only for very large amounts, at least in Europe, the central bank insures your money from its own reserves in case of bank failure up to a certain amount, AFAIK typically in the hundreds of thousands of €/local equivalent.
- flatline 11y ago
  If a bunch of banks go under at once, or even one big bank with a sufficient number of claims, who's to say the insurers will even be able to pay out on that? Nonetheless, I always find this type of apocalyptic thinking to be humorous - why do people think that their cash will be worth anything if the financial system collapses? Another motivation would be if you are concerned about having your assets frozen.
  - Symbiote 11y ago
    The central bank pays. As an example, in the UK personal deposits of a failed bank are guaranteed by the Bank of England up to £75,000. The Bank of England can always cover the amount, since they can simply print money as needed. http://www.fscs.org.uk/what-we-cover/products/banks-building-societies/ http://www.fscs.org.uk/what-we-cover/products/banks-building...
  - lagadu 11y ago
    It's not insurers who pay it's the central bank. It has control over the currency itself; because of that it can (and has to) always pay. > Another motivation would be if you are concerned about having your assets frozen. I'm with you on that one.