3 ms·

How is this possible? Wouldn't you just hold on to cash instead of buying bonds at a negative rate?

• rmckayfleming 14y ago
  For an individual yes, hold the cash. But from what I can gather, banks in some countries must keep their reserves in something other than cash (typically bonds). EDIT: It encourages banks to lend, rather than sit on a giant pile of money.
• astrodust 14y ago
  Where do you hold on to this cash? Do you keep it in piles of currency under the proverbial mattress? If so you're paying a price in terms of risk that it might be stolen. Do you keep it in a bank account somewhere? If so you're depending on that institution to remain solvent. Depositor protection, where it's provided, only covers relatively tiny amounts of money. A negative interest rate on a government bond is basically a way of parking your money somewhere relatively safe in exchange for a small service fee.