Reuters reported this week that Commerzbank, one of Germany’s biggest banks, is examining the possibility of hoarding billions of euros in its vaults rather than paying the negative interest rates the European Central Bank charges for parking it with them. Commerzbank is part-owned by the German government. This move would represent a major protest against the ECB’s ultra-low interest rate policy which have been criticised by German Finance Minister Wolfgang Schaeuble. Schaeuble said in April that the ECB’s record low interest rates were causing “extraordinary problems” for German banks and pensioners.
The ECB imposes a negative rate equivalent to 4 euros annually on each 1,000 euros deposited with the central bank. This is designed to encourage banks to lend money, rather than sit on it.
In the last year, the ECB has pumped more than one trillion euros of fresh money into the system by way of asset purchases. Most of the new money has flowed towards prosperous Germany. Deposits by European banks at the ECB now stand at more than 850 billion euros, generating a 3.4 billion euro annual cost to the banks. Meanwhile, loan demand is flat; a poor global economic outlook means weak demand for loans on the terms banks require and they therefore have little option but to hoard cash.
Vault cash poses a logistical challenge. Two billion euros in 200 euro notes results in a cash pile that weighs roughly 11 tonnes. However, holding this amount of cash electronically with the ECB costs 8 million euros per year in negative interest rates, more than enough to pay for lots of secure transportation and storage of actual physical cash.
The real issue for you, dear reader, is that there is only enough physical cash to cover about 15% of cash on deposit. That’s for starters. Central banks are also talking about eliminating cash altogether to prevent a run on cash supplies, starting with taking large denomination bills out of circulation. My advice? Go get some cash now. Better yet, buy gold coins…they’re less bulky and they hold their value much better than the stuff the governments print.