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.

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.)

> 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.

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.

Sure but then you just introduced a completely different type of risk, which is the collapse of that bank.

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.

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.

8 US banks collapsed in 2017, as another example.

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.

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)

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.

Agreed, but you certainly do it from a bank in Germany that isn't dbag. And if you're not dbag it's not such a sure thing that the government will come and save you.

Or say in the US, you'd buy that from US Bank, which isn't in the big 4 consumer, or top few commercial, and it could be let to fail.

It's still safer than a tiny bank, but it's not as safe as government bonds.

That's all it really boils down to - you pay a bit extra to get more safety.

You may be comfortable depositing $10MM in a US Bank reg D account, but I would not be.

Well actually for US Bank specifically I might because I know their business model is incredibly conservative. But replace that with another large but not big4 bank.

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?

I think the answer to both your questions is because there are costs to securely storing cash. That also makes cash risky compared to bonds, where you are not responsible for the security.

Why is everyone responding to the question under the same misinterpretation, that it means "cash" as in "physical banknotes" rather than "electronic Euros"? I know the principle of charity is hard sometimes, but come on.

Why would you expect that a bank would hold your electronic euros for less money than a negative yield bond would cost?

Because a bank can go under, and you can lose your money in excess of the insured amount.

Not if it's a bank that specifically caters to this crowd and doesn't take any of the normal risks associated with lending.

They would have two options:

A) keep the euro notes in their vault, which only works if you deposit paper bills in the first place

B) keep electronic deposits in the ECB and pay interests to do so

In either case if they give back the money to the clients when they ask for it how do you expect them to cover their operating costs (plus the interest they are charged by the central bank in case b)?

You mean like... a German bank? They will happily do what you ask. For a small fee. In the form of a negative interest rate.

And your deposit won't be insured past like 100k euro.

This imaginary bank would still have costs. What would be their income?

Excellent question. There is a company, The Narrow Bank, that has the same idea, but they didn’t get a banking license from the Fed. Matt Levine, whose newsletter you should clearly start reading, has the details: https://www.bloomberg.com/opinion/articles/2018-09-06/fed-re...

This is the first responsive answer I've gotten to that question.

Probably because the alternative interpretation makes the answer so trivial that it's not worth assuming?

A large amount of cash is expensive to store safely (fire) and securely (theft).

Not only - AFAIR the Colombian Steve Jobs had problems with humidity too - 2.1 billion 80s' USD lost to flooding and rotting is what I would call real liquidity :D And also rats I think.

It’s extremely insulting to refer to Escobar as the Colombian Steve Jobs, if that is the connection you are making.

Escobar conservatively killed thousands of people. I wouldn't worry too much about insulting him.

It’s insulting to Colombians.

Maybe it's insulting to Steve Jobs.

It's funny though.