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Are banks required to have deposits on hand at ECB? Isn't hoarding physical cash preferable to a negative interest rate?

by ISL 12y ago

bradleyjg 12y ago
I doubt banks can store physical cash for (much) cheaper than .1% per year. $1MM takes up 40 cubic feet and weighs more than a ton, you think you can securely store that for less than $1000 a year? I'd say maybe, but not by much. Then there's the initial transport costs which have to be amortized. Edit: I misread my wiki.answers.com link. That's the volume and weight for $1MM in singles, not hundreds. The costs start to look a lot more plausible, especially given that there are 500 Euro notes.
- ISL 12y ago
  These people [1] have shown that you can store $1M inside a microwave with room to spare. $100M fits on a shipping pallet. No doubt that physical money storage has associated costs. -0.1%/yr isn't enough to get someone to start storing money, but -1%/yr probably is. [1] http://www.cockeyed.com/inside/million/million_dollars.html http://www.cockeyed.com/inside/million/million_dollars.html
pmontra 12y ago
There isn't enough cash to do that. Quoting http://www.ecb.europa.eu/stats/money/aggregates/aggr/html/index.en.html http://www.ecb.europa.eu/stats/money/aggregates/aggr/html/in... (tab Background) "M1 is the sum of currency in circulation and overnight deposits;". From http://sdw.ecb.europa.eu/reports.do?node=1000003478 http://sdw.ecb.europa.eu/reports.do?node=1000003478 on April 2014 we had M1 = 5,498.8 billions Euro Banknote circulation data at http://www.ecb.europa.eu/stats/euro/circulation/html/index.en.html http://www.ecb.europa.eu/stats/euro/circulation/html/index.e... Banknotes: 948 billions Euro Coins: 24 billions Euro (*)
- ISL 12y ago
  That's not the bank's problem, though, it would be the ECB's problem if banks decided to hoard.
yxhuvud 12y ago
Holding, and distibuting, physical cash is madly expensive.

Are banks required to have deposits on hand at ECB? Isn't hoarding physical cash preferable to a negative interest rate?

by ISL 12y ago

Are banks required to have deposits on hand at ECB? Isn't hoarding physical cash preferable to a negative interest rate?

bradleyjg 12y ago

I doubt banks can store physical cash for (much) cheaper than .1% per year. $1MM takes up 40 cubic feet and weighs more than a ton, you think you can securely store that for less than $1000 a year? I'd say maybe, but not by much. Then there's the initial transport costs which have to be amortized. Edit: I misread my wiki.answers.com link. That's the volume and weight for $1MM in singles, not hundreds. The costs start to look a lot more plausible, especially given that there are 500 Euro notes.

ISL 12y ago
These people [1] have shown that you can store $1M inside a microwave with room to spare. $100M fits on a shipping pallet. No doubt that physical money storage has associated costs. -0.1%/yr isn't enough to get someone to start storing money, but -1%/yr probably is. [1] http://www.cockeyed.com/inside/million/million_dollars.html http://www.cockeyed.com/inside/million/million_dollars.html

pmontra 12y ago

There isn't enough cash to do that. Quoting http://www.ecb.europa.eu/stats/money/aggregates/aggr/html/index.en.html http://www.ecb.europa.eu/stats/money/aggregates/aggr/html/in... (tab Background) "M1 is the sum of currency in circulation and overnight deposits;". From http://sdw.ecb.europa.eu/reports.do?node=1000003478 http://sdw.ecb.europa.eu/reports.do?node=1000003478 on April 2014 we had M1 = 5,498.8 billions Euro Banknote circulation data at http://www.ecb.europa.eu/stats/euro/circulation/html/index.en.html http://www.ecb.europa.eu/stats/euro/circulation/html/index.e... Banknotes: 948 billions Euro Coins: 24 billions Euro (*)

ISL 12y ago
That's not the bank's problem, though, it would be the ECB's problem if banks decided to hoard.

yxhuvud 12y ago

Holding, and distibuting, physical cash is madly expensive.