6 ms·

There is no risk free and cost free way to hold large amounts of cash. You can deposit it at a bank, but the bank could go under. You could keep paper cash in a

There is no risk free and cost free way to hold large amounts of cash. You can deposit it at a bank, but the bank could go under. You could keep paper cash in a vault but you’d have to pay to guard and maintain the vault. There’s no actual way to just “hold cash”.

yasp 7y ago
Why couldn't you just deposit it with the state's central bank, which is what commercial banks do? Their cash balances are just numbers in an electronic ledger. There isn't some vault with physical cash inside and armed guards on the outside.
- tfehring 7y ago
  > Why couldn't you just deposit it with the state's central bank, which is what commercial banks do? In the US, the answer is that the Fed says you can't. There's some good discussion on a recent attempt/request to change this at [0] (Scott Sumner), [1] (John Cochrane), and [2] (Matt Levine). [0] https://www.econlib.org/why-does-the-fed-oppose-narrow-banking/ https://www.econlib.org/why-does-the-fed-oppose-narrow-banki... [1] https://johnhcochrane.blogspot.com/2019/03/fed-vs-narrow-banks.html https://johnhcochrane.blogspot.com/2019/03/fed-vs-narrow-ban... [2] https://www.bloomberg.com/opinion/articles/2019-03-08/the-fed-versus-the-narrow-bank https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...
- nawitus 7y ago
  Because the central bank has negative interest? It's the reason commercial banks will refuse to store sufficiently large amounts of cash in a 0.00% checking account (even though they offer it for smaller amounts).
  - xchaotic 7y ago
    Hmm FED rate is NOT negative?
    - nostrademons 7y ago
      Fed isn't but Japan and many European central banks are. Bank of Japan and ECB are both at -0.1%.
      - petre 7y ago
        The ECB is more like at -0.4%. Outrageous. https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...
- joecool1029 7y ago
  You can! ..... if you live in North Dakota: https://bnd.nd.gov/ https://bnd.nd.gov/
- dragonwriter 7y ago
  > Why couldn't you just deposit it with the state's central bank, Because state central banks won't take you as a customer because they aren't commercial banks, aren't interested in being commercial banks, and are often legally prohibited from acting as commercial banks. Also, because negative interest bond rates are produced by the same conditions which motivate negative central bank interest rates, so it's not much of a solution even if it was allowed. Bank deposits and bonds are both ways of loaning people cash you aren't currently using (but demand deposits mean it is legally expected for them to give money back on demand, so usually has lower interest due to the greater convenience.)
nostrademons 7y ago
It seems like this applies to any sort of counterparty risk, though - if you buy a bond with negative interest rates, there is no guarantee that they will pay it back, or that there will even be an organization to pay it back. In fact, with negative interest rates, there's an incentive to borrow as much as you can, just let it compound, and never pay back the money. ...come to think of it, this explains a lot about today's perma-bubble world.
- esoterica 7y ago
  Certain developed country governments are considered safer than private banks and companies, which is why they can persuade people to accept negative interest rates on their bonds whereas regular private entities can’t.
solotronics 7y ago
This is one of the key interesting aspects of cryptocurrency to me. Anyone with a little knowledge can generate their own private key and store/move any amount of money in it securely.
- esoterica 7y ago
  Your wallet key can be stolen, there might be an undiscovered vulnerability, in the protocol, the currency could tank in value, etc

yasp 7y ago

Why couldn't you just deposit it with the state's central bank, which is what commercial banks do? Their cash balances are just numbers in an electronic ledger. There isn't some vault with physical cash inside and armed guards on the outside.

tfehring 7y ago
> Why couldn't you just deposit it with the state's central bank, which is what commercial banks do? In the US, the answer is that the Fed says you can't. There's some good discussion on a recent attempt/request to change this at [0] (Scott Sumner), [1] (John Cochrane), and [2] (Matt Levine). [0] https://www.econlib.org/why-does-the-fed-oppose-narrow-banking/ https://www.econlib.org/why-does-the-fed-oppose-narrow-banki... [1] https://johnhcochrane.blogspot.com/2019/03/fed-vs-narrow-banks.html https://johnhcochrane.blogspot.com/2019/03/fed-vs-narrow-ban... [2] https://www.bloomberg.com/opinion/articles/2019-03-08/the-fed-versus-the-narrow-bank https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...
nawitus 7y ago
Because the central bank has negative interest? It's the reason commercial banks will refuse to store sufficiently large amounts of cash in a 0.00% checking account (even though they offer it for smaller amounts).
- xchaotic 7y ago
  Hmm FED rate is NOT negative?
  - nostrademons 7y ago
    Fed isn't but Japan and many European central banks are. Bank of Japan and ECB are both at -0.1%.
    - petre 7y ago
      The ECB is more like at -0.4%. Outrageous. https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...
joecool1029 7y ago
You can! ..... if you live in North Dakota: https://bnd.nd.gov/ https://bnd.nd.gov/
dragonwriter 7y ago
> Why couldn't you just deposit it with the state's central bank, Because state central banks won't take you as a customer because they aren't commercial banks, aren't interested in being commercial banks, and are often legally prohibited from acting as commercial banks. Also, because negative interest bond rates are produced by the same conditions which motivate negative central bank interest rates, so it's not much of a solution even if it was allowed. Bank deposits and bonds are both ways of loaning people cash you aren't currently using (but demand deposits mean it is legally expected for them to give money back on demand, so usually has lower interest due to the greater convenience.)

nostrademons 7y ago

It seems like this applies to any sort of counterparty risk, though - if you buy a bond with negative interest rates, there is no guarantee that they will pay it back, or that there will even be an organization to pay it back. In fact, with negative interest rates, there's an incentive to borrow as much as you can, just let it compound, and never pay back the money. ...come to think of it, this explains a lot about today's perma-bubble world.

esoterica 7y ago
Certain developed country governments are considered safer than private banks and companies, which is why they can persuade people to accept negative interest rates on their bonds whereas regular private entities can’t.

solotronics 7y ago

This is one of the key interesting aspects of cryptocurrency to me. Anyone with a little knowledge can generate their own private key and store/move any amount of money in it securely.

esoterica 7y ago
Your wallet key can be stolen, there might be an undiscovered vulnerability, in the protocol, the currency could tank in value, etc