Saturday, February 1, 2020

Negative Interest Rates Are Forcing German Banks To Hoard So Much Cash They're Running Out Of Space

To help them keep as little money in reserve accounts as possible, banks in Germany are reportedly stuffing vaults with euro banknotes to keep them handy for customers (and avoid the additional NIRP tax on deposits).

Some banks have hoarded so much cash that they're running out of room and are searching for more storage. This behavior has been going on for years, practically since Draghi introduced negative rates almost six years ago, reports Zero Hedge.

But the trend has gotten so out of hand German banks are running out of space to stash the notes.

The physical cash holdings of German banks rose to a record 43.4 billion euros ($48 billion) in December, according to Bundesbank data published on Friday. That’s almost triple the amount at the end of May 2014, the month before the European Central Bank started charging for deposits and raising the pressure on Germany’s already beleaguered banks.

The truth will out. People and corporations will attempt to find ways around government interventions that attempt to force a situation that goes against human nature, such as negative interest rates.



  1. Does hoarding cash create deflation, the opposite of the intended result of a negative interest rate?

    1. A reduction in the money supply increases the purchasing power of the remaining money, which, all else equal, would lead to price deflation, and hoarding is one way to reduce the money supply. However, the hoarding of cash could be more than offset by an increase in the money supply through bank lending.

    2. Hoarding doesn't reduce the money supply.


      If V falls (hoarding), M doesn't change.

    3. Rothbard discussed the absurdity of this identity in chapter 11 of "Man, Economy, and State." V cannot be defined independently of the other variables, and P and Q are meaningless (undefinable). This identity tells us nothing meaningful about economics.