5 ms·

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.

by 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.)

by yasp 7y ago

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.)