Holding physical cash makes sense in the event negative interest rates are implemented in the country in which you reside.
Physical cash only meets one of my Five Investment Goal Categories I consider when allocating capital.
Not only that, but it absolutely stinks on the other four.
The US Dollar has over a hundred year history of going down in value. The US Dollar does not appreciate or pay any interest, does not generate monthly income and is very vulnerable to geopolitical risk.
Why would I hold onto something I know will go down in value?
Even though the US Dollar fails in four out of five categories it excels at one: US Dollars are EXTREMELY LIQUID.
Cash dollars are accepted across the United States. US dollars are also the global reserve currency and accepted around the world.
I Want Cash if there are Negative Interest Rates
One of the things I believe is coming are negative interest rates. Negative interest rates would mean that a percent of the money in your bank account would be removed and given to the bank.
You’d be paying the bank to store your money.
If you think this is crazy you’re right. But it’s already being done in places like Japan and Europe.
Regardless of where I lived in the world I would want some of my money in physical local currency.
In the United States, the Federal Reserve has stated they aren’t investigating negative interest rates.
I take this denial as a strong contrarian indicator that they are in fact considering negative interest rates.
Negative Interest Rates
In a negative interest rate environment a person is better off holding cash as opposed to leaving money in a bank account.
I greatly dislike fiat currencies in general and the US dollar in particular. Despite my dislike of holding US dollars they are still needed to buy basic items like food and clothing and pay rent.
If the United States does implement negative rates, rational people would seek to withdraw their money from the bank in the form of cash and so the US government would naturally try to prevent this from happening by imposing limits on how much cash could be withdrawn per day.
I don’t want to be rushing out to the bank to make a withdrawal with everyone else when the Government announces capital controls. I want to be the guy that already has a months expenses worth of cash available.
I prefer smaller bills like the $10 and $20 because higher denominations like the $50 and $100 will likely be banned first as the war on cash intensifies.
Even if I didn’t think negative rates or capital controls would happen in the US (or the country in which I resided) I want to have extra cash available in the event of a natural disaster or when there are power disruptions and credit card readers won’t work.
Holding a months worth of expenses in cash is right for me and provides needed liquidity for my overall asset portfolio.
We already have negative interest rates if we take inflation into account. Nominally negative rates are only a psychological barrier.
That is a great point Richard. We’ve had negative real rates for a while.
Man, this is the first time I’ve heard this. That would make me feel quite unsure if we moved to negative interest rates, as I already don’t like handling physical cash on hand because I’m not good at saving it.
I can put money into bank accounts like you wouldn’t believe and am currently actually cash heavy. I would definitely be looking for new opportunities to hold my money.
Someone interested in holding some cash could put it in a safe deposit box at a bank–but that is against the terms of service of most (maybe all?) banks (because they want you to deposit it in your account so they can loan it out). Another option is a safe or hidden in the house somewhere. Another idea could be to have an accountability partner, like a spouse, hold the money. Negative rates might not come to the US but I think it is much more of a possibility than many people consider.
Definitely something to keep up on my radar! The safety deposit box does sound interesting, but I’m not sure if it’s against TOS either. It would probably force me to put it into a brokerage account or something like that with a money market account unless those became negative as well.