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Cash has risks: * risk of physical destruction * risk of physical theft * risk of forgery etc etc There's some nonzero cost to accept, handle, vet, store,

by dmoy 7y ago

Cash has risks: * risk of physical destruction * risk of physical theft * risk of forgery etc etc There's some nonzero cost to accept, handle, vet, store, etc for cash. That's not even including if there are extra reporting laws or other for large amounts of cash, which just adds to the overhead.

jonathankoren 7y ago
These are all concerns with paper, not “cash” as it’s commonly considered in finance. Have $xx,xxx in a checking account at a national bank. It’s a database entry, not a pallet of pennies. Furthermore, with fractional reserve banking, I sincerely doubt if there’s enough coins and bills in the country to account for the total “cash” in all the accounts, let alone all the assets. Similarly, everyone involved in these transactions have access to the same banking system. There’s no reason you need to fly a C-5 with pallets of Swiss francs around. (Even then, it seemed absurd since both governments could access Swiss banks.)
- JumpCrisscross 7y ago
  > Have $xx,xxx in a checking account at a national bank At the scales of financial infrastructure, bank deposits are not cash. They are debt issued by banks. The point of collateral is to give a bank’s word weight.
  - perl4ever 7y ago
    Or, based on what I read in financial statements, "cash" and "short term securities" kind of blur together. Cash is more of a general category of things that are suitable to use for similar purposes, than one specific thing.
- dmoy 7y ago
  Sure but then you just introduced a completely different type of risk, which is the collapse of that bank.
  - jonathankoren 7y ago
    Bank collapse is pretty rare. Even accounting for 2008, there’s now a de facto government insurance plan for banks. i.e. Too big to fail.
    - dmoy 7y ago
      Banks collapse often in the US. There have been 63 since 2008 with over a billion in assets. 28 since 2010. In germany unless you're with DBAG it's not clear the government would step in and save you.
    - dmoy 7y ago
      8 US banks collapsed in 2017, as another example.
      - perl4ever 7y ago
        Wikipedia has a list of the specific banks, and most of the recent ones have been quite small. e.g. The Farmers and Merchants State Bank of Argonia with about $34M in assets. The FDIC has stepped in as expected with all of these, I believe.
        dmoy 7y ago
        Yes, but the FDIC equivalent in Germany is 100k, which doesn't help you if you're in the business of buying 30 year bonds (usually that's institution buying >10MM)
        jonathankoren 7y ago
        No one buys a 10 million dollar, 30 year bond from a bank with 34 million in assets. It’s disingenuous to claim that all banks are equal in terms of capabilities, assets, or risk.
        dmoy 7y ago
deleted 7y ago
[deleted]
joncrane 7y ago
and this is exactly why there is a market for negative yield bonds. The true decision point isn't 0%. It's the rate for the risk/cost of holding cash. BTW has there been any research toward what this rate actually is?

by dmoy 7y ago

jonathankoren 7y ago

These are all concerns with paper, not “cash” as it’s commonly considered in finance. Have $xx,xxx in a checking account at a national bank. It’s a database entry, not a pallet of pennies. Furthermore, with fractional reserve banking, I sincerely doubt if there’s enough coins and bills in the country to account for the total “cash” in all the accounts, let alone all the assets. Similarly, everyone involved in these transactions have access to the same banking system. There’s no reason you need to fly a C-5 with pallets of Swiss francs around. (Even then, it seemed absurd since both governments could access Swiss banks.)

JumpCrisscross 7y ago
> Have $xx,xxx in a checking account at a national bank At the scales of financial infrastructure, bank deposits are not cash. They are debt issued by banks. The point of collateral is to give a bank’s word weight.
- perl4ever 7y ago
  Or, based on what I read in financial statements, "cash" and "short term securities" kind of blur together. Cash is more of a general category of things that are suitable to use for similar purposes, than one specific thing.
dmoy 7y ago
Sure but then you just introduced a completely different type of risk, which is the collapse of that bank.
- jonathankoren 7y ago
  Bank collapse is pretty rare. Even accounting for 2008, there’s now a de facto government insurance plan for banks. i.e. Too big to fail.
  - dmoy 7y ago
    Banks collapse often in the US. There have been 63 since 2008 with over a billion in assets. 28 since 2010. In germany unless you're with DBAG it's not clear the government would step in and save you.
  - dmoy 7y ago
    8 US banks collapsed in 2017, as another example.
    - perl4ever 7y ago
      Wikipedia has a list of the specific banks, and most of the recent ones have been quite small. e.g. The Farmers and Merchants State Bank of Argonia with about $34M in assets. The FDIC has stepped in as expected with all of these, I believe.
      - dmoy 7y ago
        Yes, but the FDIC equivalent in Germany is 100k, which doesn't help you if you're in the business of buying 30 year bonds (usually that's institution buying >10MM)
        jonathankoren 7y ago
        No one buys a 10 million dollar, 30 year bond from a bank with 34 million in assets. It’s disingenuous to claim that all banks are equal in terms of capabilities, assets, or risk.
        dmoy 7y ago

deleted 7y ago

[deleted]

joncrane 7y ago

and this is exactly why there is a market for negative yield bonds. The true decision point isn't 0%. It's the rate for the risk/cost of holding cash. BTW has there been any research toward what this rate actually is?