German banks are hoarding so many euros they need more vaults | Hacker News Reader

German banks are hoarding so many euros they need more vaults

bloomberg.com

202 pointslxm320 comments

This problem has probably been exacerbated by the fact the the $500 euro note has not been issued since 27 April 2019[1]. I wonder if making storing euros in cash 2.5 times harder (500 versus 200 euro notes) was part of the reason the 500 euro was retired.

[Edit] The legal storing of cash. The stated reason was the criminal use of cash.

[1]https://en.wikipedia.org/wiki/500_euro_note

500 euro was (and is) essentially not used for any day to day payments - i.e. the most important reason for having printed paper as money.

True. But it is nice to have large bills when buying something that costs a lot, like a used car. I recently did that in the US and if I had some $500 or $1000 bill things would have went a bit smoother at that nervous time in the transaction when you are handing over to a person a big chunk of money.

Why couldn't you use a cashier's check?

That's not a thing in (most countries of) Europe any more. I was shocked when I came to the US and saw that checks are still in use

Check and cashier's check are different things.

A cashier's check is like a domestic SWIFT.

Exactly why it is not needed, the banking system supports transfers between banks in SEPA for free or very cheaply.

Some people/business will still ask for a cashier's check though.

The point the person you are replying to is making is that to Europeans, checks are a thing that only exist in Hollywood movies.

It's difficult to imagine in a modern world, people or institutions writing or printing something on a piece of paper, and saying, "here, this is money".

Still a thing in France, at least as of last year.

Got stuck behind someone at the Carrefour (grocery store) paying with one. Ugh.

Still common in the UK. I know friends in Wales who can only pay by cheque because a two-signature policy applies to their bank account.

Very common in France for bigger transactions or guaranty deposits.

People in the US don't trust cashier's checks. For good reason. They are easily forged.

Some people would balk at the idea since they have bad credit and no bank account, and hence have to fork over a fee to walmart/publix/your local check cashing place in order to make it liquid. Cash works for everyone.

I agree, cashiers checks are safer, but some people have reasons to prefer cash.

Unless you're homeless you will have a bank account in Europe. For the simple reason that you can't really live without one. Taxes, salary, state allowance and mortgage are all done by bank transfer and nothing else.

In the UK all big banks offer "basic" (no credit attached) free bank accounts as the government were musing placing a public service obligation on them to make it compulsory.

In the UK, government benefits are paid by bank transfer.

We don't really use checks in Europe, at least not in the Netherlands..

But in the UK we do. You can set up a bank accounts which requires two signatures, then only cheque payments are possible. Very quiant, annoying and backwards.

I am the Treasurer of a Charity we set up to keep our local Library open. We need two signatures on our cheques - but not to be "annoying" or "backwards". It's simple security to stop a rogue actor emptying our bank account!

Yep I get that, but the artist playing at our charity festival have complaint every time about having to deal with cheques both I (treasurer) and the other finance officer have to sign. Why is it that in the 21st century we can't have a digital online two-signature policy yet have to sign a paper which signatures one easily can forge. That's backwards. We got cryptocurrencies but no way to implement a digital two-signature policy? Odd.

Because they are not used here since 19th century :)

In Spain the bank charges you for this service (you can negotiate the amount). There is no commision for cash, but you must fill a form to tell the taxman that you are getting a more than given amount (3000€ if I remember well)

I have never seen a check in my life :-) (EU), they are not used or supported (maybe in some special cases, but 99% of people never used a check here). Larger sums are always paid with bank-wire transfer which is free and usually fast (instant or 24 hour), smaller payments are done with debit (or credit) cards, and then small payments can be done with cash.

When I was a teenager, my mother was playing a lottery that sent out winnings as checks through the mail. She always gave those to me to cash in because I was the only one in the family who had a checking account at the local bank. Her bank did not have branch offices, so it was literally impossible for her to cash the check.

You tend to run into the problem that forging large notes has a much greater return on investment. People get nervous about accepting them. In the UK this definitely kicks in around the £50 mark.

Heh, yep, like to joke that $100 feels like a lot of money whenever you try to spend a $100 bill. I can barely fathom what it's like trying to pass a 500 EUR note.

If you spend time in casinos, $100 notes flow around like water.

Casinos are also a hotbed of money laundering.

Bugsy Siegel look at this with the note of approval

The most forged notes are the smaller ones because everyone checks the large notes. You can just hand people a photocopy of a €20 euro bill with a hologram sticker and if it’s in a dark bar you’ll probably get to keep the change.

Don't they run all the notes through the checker?

No, that takes way too much time. If you check using a UV light you’ll notice most simple forgeries but I guess most people just don’t expect small bills to be forged.

Does it? Every time somebody pays in cash in a store here they run each bill through a machine that, I'm pretty sure, checks the authenticity of the bill.

A store is not a bar. Stores typically have less transactions but these transactions involve more money, so you can afford more time.

There's no denomination larger than £50 in England, right? Scotland and NI have £100 which probably adds to the confusion.

In general circulation, that's right - but the Bank of England does have £100,000,000 notes: https://www.bbc.co.uk/news/magazine-21145103

Signs stating "$100 notes not accepted" used to be seen in many shops Canada about 15-20 years ago, when cash was much more commonly used. Since the switchover to polymer bank notes around 2011, counterfeiting has become almost non-existent but cash payments in general are much less common too.

I love how Japan is a cash economy. It's normal to walk around with 2-5 $100-equivalent bills (the 10,000 Yen note) as pocket change for a week or so.

Paid $22,000 in Y10,000 notes for a private event once. The staff didn't even bat an eye.

In many countries in Europe you can't use cash for large sums. We generally use bank transfers to buy cars.

I'm genuinely curious. Do you need to go to a physical bank location to do this? How do you buy a car in the evening or a Saturday afternoon, when a bank is closed?

In the UK online bank transfers work 24/7 and clear in seconds (all banks are required by law to have APIs for fast inter-bank transfers).

They're not legally required to be instant, but they usually are. The "ambition" set out legally was half a day, if your transaction is initiated in the morning it should clear that afternoon. It's just that in practice instantly is the realisation of this ambition when things work. And I don't think there's any API requirement, the regulation just explains the consumer experience, that you can transfer relatively small amounts of money (enough for a nice car, not enough for most houses) fast ("Faster Payments" is the name given to this feature), and doesn't dictate how.

For large transactions transfer for a fee already existed. CHAPS will move much larger sums of money (it's typically used to buy property so certainly millions but perhaps more) for a modest fee. You wouldn't want that fee on your weekly groceries, but when you just bought a house who cares?

Last I looked the backend for Faster Payments wasn't actually built. The big banks decided instead "temporarily" to just trust each other. If Bank A says Cathy sent Mike £5000 then Bank B where Mike's account is will credit Mike £5000 (probably instantly), presumably Bank A will reduce Cathy's account by £5000 and the two banks agree they'll settle things at the end of the day. This is only scary if Bank A might not actually have that £5000 to give Bank B at the end of the day when it's settled, which in principle should never happen under current financial regulations.

In the UK, and probably most places in Europe, with a debit card.

> and probably most places in Europe

Incorrect. I tried to buy a new car in France with a credit card. That was an extremely awkward moment. I was kindly told that this was a very weird thing to ask.

Debit cards and credit cards are quite different things in most of Europe.

To be fair, in Romania I was refused too, ~5years ago. All cards have a percentage fee - when you spend tens of thousands on something, even a small percentage adds up. Thus the car dealers require a bank transfer, which is generally free of charge for both parties.

It looks like the change in 2015/2016 to reduce card fees, while enabling us to buy a single bottle of milk by card with a 0.2% fee for the merchant, has made things worse for people selling cars.

Instead of a small, fixed fee (e.g. £0.10) it's now also 0.2%.

https://www.am-online.com/opinion/2016/12/06/opinion-debit-c...

(The article does at least tell us that "many" customers pay for the full price of the car with a debit card.)

0.2%? You could probably wring a greater discount from the dealer by haggling half-heartedly.

Typically the payment happens post-haggling... and by that point 1% of the price might be their entire margin on the sale. I mean, if you pay full list price, maybe they won't mind you paying with card :D

The same thing here in Brasil since 2002. The only difference that there is an artificial restriction that online transfer between banks outside of banking hours will only clear when the banks open again. Other than that most transfer between banks clear in seconds and can be made from your phone. This artificial restriction is probably going to be lifted this year. And of course, if seller and buyer have accounts in the same bank, there's no business hours requirement, it will clear in seconds not matter what the time of the day. Also, depending on the american bank, I usually am able to cash wire transfers coming from the US in the same day, if the american bank sent the wire during brazilian business hours. Everytime I deal with the American banking system I get appaled by its primitiveness. ACH is basically how banking technology worked on the early 90's in Brasil.

You can do it from your phone.

Buying a car in Europe is a complicated affair, and certainly not something that can be concluded in an afternoon.

What? You go to a car dealer, sign, pay and drive away.

Don’t you need to register the car in the DMV and get an insurance before you can drive away? That’s definitely the case in the parts of Europe I’m familiar with.

Getting insurance can be done online in about 5 minutes and the registration at the DMV equivalent is your problem (as the buyer) afterwards and can be done anytime in the next 2 weeks.

I can see that happening for second-hand cars but not for new cars that have to be issued new plates. But maybe things work differently in other countries. “Europe” is not really one place.

You can usually immediately get temporary transfer plates that’ll be valid for a month everywhere(?) in the EU.

I got that kind of temporary plates once... at the DMV. It was quick, but they didn’t materialize magically when I needed them. Maybe it’s easier now, though.

I’ve seen people use third party services that work with the DMV to make them materialize magically.

What a time to be alive!

Car dealers over here are also "DMV deputies" for lack of a better translation. You bring your license, they type some things in their computer, print an ownership document and you get your car. The more permanent (creditcard sized) ownership card thingy will arrive in the mail a few days later.

Insurance is indeed mandatory, but you can get it online in 5 minutes. Or by phone. They call it "drive away coverage" that works immediately but requires signing the final policy etc within something like a week.

In my state the DMV gives you ten days to register a new car. If you have any car insurance at all there is a grace period.

The “pay” part really depends on the value of the car and if you have a big pile of cash handy.

Recently instant SEPA transfers have made this easier, but not available between all banks.

Prior to SEPA becoming prevalent, I've witnessed it done with an id and credit check together with a decent sized deposit via debit/credit card (~€10K). Balance wired using SWIFT or TARGET2 within 72 hours of driving away. You have to swallow the card processing fees though.

Not necessarily, but safer to do so. I recently bought a used car from a private party, and we went to a lobby of a bank to close the final transaction. I got a cashier's check from the bank, signed it over to the seller, and exchanged the keys/title for the car.

This way, neither the buyer nor the seller needs to carry large amounts of cash with them. The cashier's check is not given unless the buyer's account has enough funds to cover it, so the seller doesn't need to worry about a bounced check.

Even if the bank branch is closed, they usually have private ATMs available that are much more capable than your average US-style ATM. You can do just about anything at those ATMs that you could do inside the branch.

At least, that's the way it was back in 2006, when my wife and I moved from Brussels, Belgium back to the US.

I remember many long hours sat at one of those ATMs (yes, they had private seating for most of them), paying various bills electronically using the bank account number given to us by the company that sent us the bill.

Direct account-to-account transfer is supported between all major EU banks. It takes a couple of seconds at most, and it's free.

If you mean SEPA instant credit transfers I think they are available only in some countries and they are not free in my experience.

In my country bank to bank transfers are free and instant.

It's extremely convenient to be able to pay anyone any amount at any time with nothing more than your phone.

Sounds like a good way to get mugged with violence.. "Transfer me all of your bank account, right now !!" (To an account opened using fake ids of course)

People with fake IDs are not going to engage in mugging. If you plan out your crimes so much that you have fake IDs ready, it's way safer and more profitable to do some scamming or fraud scheme instead.

It depends on the country. Within the EU, SEPA transfers must be no more expensive than the equivalent domestic payment. At least in Sweden, this means that SEPA transfers are free.

This rule is new though, it went into effect in December: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELE...

> Charges levied by a payment service provider on a payment service user in respect of cross-border payments in euro shall be the same as the charges levied by that payment service provider for corresponding national payments of the same value in the national currency of the Member State in which the payment service provider of the payment service user is located.

SEPA instant transfers do typically cost around 1 euro in Spain and France, for example. Also for domestic transfers, so I’m not sure that regulation will have an effect.

FWIW, I did a SEPA instant payment last Thursday between German checking accounts. I was billed 0.24€ by my bank.

Are they irreversible?

I've always bought and sold vehicles (or anything private sale) in cash in Canada because I am extremely leery of reversible payment methods where the payment account owner can claim 'fraud' and I'm out the item and the money.

Craigslist and Kijiji (the most popular online classifieds platforms) explicitly warn people to deal only in cash because of this problem.

They are irreversible as soon as they show up in the receiving account.

> In many countries in Europe you can't use cash for large sums. We generally use bank transfers to buy cars.

Some, like Sweden and Italy, going to extremes to phase cash out of existence, the latter making 'large' cash transaction punishable by jail/fine.

I lived in EU during the financial crisis, and when cash got scarce prompting places in Greece to issue their own local currency [1] to do basic transactions (kids in school were passing out due to a lack of food, hospitals were running out of medicine and basic supplies in general) many were confident you would see something like this: Germany hoarding cash while the PIIGS were left to their own devices.

Its sad, the problems paper fiat currencies beget: be they the promises of utilitarianism or the illusions of prosperity its one I wish we can finally overcome soon.

[1]: https://www.nytimes.com/2011/10/02/world/europe/in-greece-ba...

>I lived in EU during the financial crisis, and when cash got scarce prompting places in Greece to issue their own local currency [1] to do basic transactions (kids in school were passing out due to a lack of food, hospitals were running out of medicine and basic supplies in general)

Didn't something similar recently happen when Modi was trying to ban cash in India? Kinda backfired. Cash (and gold) will probably never die there.

>We generally use bank transfers to buy cars.

It's actually the only possible way to buy a new car.

If you don't believe me, go try and buy a car with a credit card in the EU, see what happens.

Is it possible to buy with cash?

It's probably not possible in most of EU because there is a limit for cash transaction which is I think 15 000 Euro (not sure if EU wide, but definitely here in Slovakia), over that you need to do a bank-wire transfer. All new cars are paid this way - or you purchase it with a loan / lease and don't need to put down this amount of money at once. Most new car dealers don't even have a cash register and would not take such an amount of money from you in cash. This is due to prevent money-laundering.

Not sure about other countries, but in Spain you can't pay anything above three thousand euros (IIRC) in cash.

People downvoting others in disbelief should try to find a source by themselves before.

2500 EUR if you live in Spain

https://www.agenciatributaria.es/AEAT.internet/Inicio/_Segme...

Depends on the country and the amount of cash [0]

[0] https://www.europe-consommateurs.eu/fileadmin/user_upload/eu...

You may technically be correct, as the UK is no longer in the EU. You can buy cars with a debit card in the UK, haven't tried using a credit card.

Debit card works fine to buy a car all over Europe and generally everyone here has a debit card. Creditcard usually doesn't work due to the much higher fees (2 to 3% for credit vs 0.2% for debit).

Funny thing, in Russia everything is backwards. You basically could pay for newspaper with credit card, but car or real estate cost of credit card / bank transfer will be so high, so it's common to pay in cash.

The best way to pay for a used cari the US (assuming you mean from an unknown private seller, not a dealer or family) is probably for the buyer and seller to go to the buyer's bank together and have the buyer get a cashier's check in front of the seller and exchange title/keys for cashier's check right then and there. It eliminates the risk of a forged cashier's check and the need to carry large amounts of cash.

Isn't the point of a cashier's check to avoid this entire process? The note should be associated to a bank and there should be multiple independent information providers that have contact information for that bank you can use to verify the information.

Obviously, using verification information such as a phone number from the note itself is susceptible to scamming, but discovering the contact information through multiple reputable external sources then contacting the bank from this information has extremely low risk of being scammed.

That still requires the buyer to hand over the check before they receive the keys and title.

I used one at Real, think I bought like 30 Euros worth of stuff. They did look at it for a bit, but accepted it without complaint. Amazing compared to a 50 pound note in England :D

According to that same article, the reason for retiring the note was because the people who benefited the most from its existence are criminals, who need to do their business in cash -- the fewer notes, the easier for them. That includes storage, I guess.

Still, I'm personally not in the eurozone, but in general terms for the end user high-denomination notes are not very useful unless you're gonna store them under your bed (and governments don't like this, they'd rather everybody be bancarized). Actually using them to buy things is a pain, since most businesses won't accept them. Having one in your wallet is a problem that you have to take care of, instead of just money

Interesting, I don't see any mention retiring the note because of criminal use or anything about the 500 note at all. Is Bloomberb A/B testing the content of articles now? Would not be surprised, but it would be a disturbing trend.

Commenter was referring to the Wikipedia article, their wording was a little confusing though.

The same people who benefit from encryption if govts are to be believed. If cash keeps being as unwieldy as it has become, a $100 note today is worth about what a $10 note was worth in 1920, people will just stop using govt back cash and use gold or art instead. Monero looks like it's the first large scale crypto to get inflation and anonymity at least partly right.

I've been in the eurozone since it started.. only ever saw 500 euro bills being exchanged in casinos.

I exchanged cash in Canada before heading to EU for 10 weeks and the kiosk gave me all EUR500 notes and said it was all they had.

Russian mafia has to liquidate somehow.

Ya, it’s a real mess, especially if you can’t break/spend them all.

At least I learned that France has several central banks.

You’re kinda SOL if you go to a euroized non-EU country (Montenegro or Kosovo).

And yet across the border, I've been given a CHF1000 note cashing a deposit slip in a post office.

> Actually using them to buy things is a pain, since most businesses won't accept them.

For me it always went smoothly when buying something that exceeded the value of the high note. Your experience may differ if you buy a roll in the bakery.

Spent them at an FNAC when buying a TV. They called up the bag-checking security guard at the front to check it.

Didn’t think they would know any better than the cashiers...

It also depends on the country. I had family hand me a 500 Euro note because they couldn't even get get it changed at banks in France.

I took it on my trip to Austria a week later and got it changed at the post office.

> According to that same article, the reason for retiring the note was because the people who benefited the most from its existence are criminals, who need to do their business in cash -- the fewer notes, the easier for them. That includes storage, I guess.

And then, they tell bitcoiners they are crazy for denouncing the overreach of central banks.

This is what they want the citizens to believe.

I wonder if we are meant to think of drug dealers but the governments are just as worried about the local handyman or small construction company getting untraceable cash payments without paying taxes.

This is why so many taxi drivers say their "credit card reader is broken"

They aren't getting enough €50 or $100 notes to be a real logistical problem. You can put 10k in your pocket, and count it in a minute or two.

If you have large piles of money to launder, one way is to build a rental property and pay all the materials/contractors in cash.

But now harder to do that with 5x the bills. Or suddenly stuck with 500s that nobody wants to take.

Wait... how do you explain the appearance of the building with no expenses shown except "from cash"?

There are expenses, they're just not the right expenses.

At least in Canada, the city cares about building permits, but doesn’t do any checking on how the building/construction was paid for.

Banks don’t really question rent cheque’s coming in every month, or a large bank transfer coming from your lawyer for the sale of property.

In 2016 India did the infamous demonetization claiming that the ₹500 notes were used in hoarding black money and funding terrorism.

It ended up massively shocking the unorganised economy, and the nation is still recovering from it. The main reasons the government stated while doing it are still going on. The entire exercise didn't solve any problems.

I don't have any actual knowledge of the effects of this in India.

However, I think that when a member of the general public makes sweeping statements like "the entire exercise didn't solve any problems" it's only flaunting prejudices. If you work at a job related to infrastructure, the details would be incredibly boring to the public, and certainly aren't shared. But you could see something was double or half the year before, and it would mean infinitely more than a million people parroting what everyone always says because they always think the same thing.

Indeed it was. Even now the 200 Euro note is the best for laundering and transportation since it's the highest value bill in common circulation (per Fed employee)

Well, I am no expert but let me play the futurist here. After they killed the 200 Euro note it is going to be the 100 Euro note that is going to be used by those damn criminals!

It is in essence part of the same eradicating rights movement that is fighting against anonymity in the internet. "Hey look, there are some criminals benefiting from it so let's kill it."

agree

There are valid reasons to have anonymity on the internet - plenty of them. It's really hard for me to grok the intrinsic value and human right of carrying a 200 note instead of two hundreds. If I'm gift giving, maybe, but frankly I can't stand getting hundreds as gifts, they're a pain to spend and just cause more work for me.

I am against giving up any rights of individual freedom whatever so small the real value thereof is. I see it as a matter of gradually eroding the right of anonymous transaction/cash from the top and the bottom. They went after the 500 Euro bill and currently are on the way to kill the 1 and 2 cent coins. In 5 years they will go after the 200 Euro bill and so on.

In the UK, £20 notes are the highest commonly used. That doesn't mean they get rid of cash. There are just very, very few cases where you need that much cash that £20 notes are impracticable.

It seems the CHF 1000 note has the highest value among all.

Good luck using one though in Brazil or Vietnam - they're illiquid relative to euros or dollars and therefore harder to launder.

"widely used currencies" can be read as "usd, eur, jpy, cny, gbp, cad", although chf is up there it seems.

The really big criminals and tax evaders will ever find a way around this kind of restriction. This is useful to control the smaller fish. But, also, the cynic in me thinks that the big sharks have lots of friends in high places and politics and public administration and that those restrictions were never intended to catch them on the first place.

I doubt most of these laws are ever intended to catch the big fish -- like in business, the big guys always require special handling to process. For criminals, the big guys should already be so far disassociated with the actual activity that you're not going to catch them with normal crimes. For example, Al Capone was famously trialed on tax evasion, rather than any of the innumerable crimes he committed but couldn't be processed for.

The actual law simply isn't that notable in these cases, because the big guys have enough money to figure out how to navigate it liability-free.

Which is also why the law only really applies to the poor -- with enough time and resources, there's always a workaround.

Small net for small fish. Big net for big fish. There's also no problem with getting criminals to go through extra steps. The more processes, the more room for error.

The point is to not make it convenient for them at all.

If this was an actual problem, couldn't the ECB issue (eg) €1 million bearer bonds to the banks that have to store cash (these notes wouldn't need to go into general circulation). In fact, why don't they do that?

The short answer is that they don't want to make it easy for banks to hold cash; they want the banks to loan the money out (ideally) or deposit it with the European Central Bank where they will have to pay for the privilege in the form of negative interest rates (which is what the banks are trying to avoid by holding the cash).

This problem has probably been exacerbated by the fact the the $500 euro note has not been issued since 27 April 2019

The United States used to print $100,000 notes. They were only available to banks for moving from bank to bank, I believe, and so were useful for reducing the number of notes that needed to be stored by banks, while keeping them out of the hands of criminals.

> They were only available to banks [...] while keeping them out of the hands of criminals.

So they were discontinued when they couldn't find any non-criminal bankers?

So, when they formed the Fed?

The US also had lower denomination bills like the $500 and $1000 until 1969. They were not in much use then but I think that they could have useful legal uses today considering all of the inflation that happened since 1969. The $500 now would be about like $75 in the 1960's.

I'm trying to think of places that would want to accept $500 to $1000 notes when many places won't even accept a $50 or $100 and consider them "large bills."

While I agree with your premise that inflation makes $500-1,000 notes practical from the standpoint of modern expenses, businesses I interact with tend to prefer a third party to verify payment (CC merchant, cashiers check, etc.).

Cash is dying and although I love convenience, I'm not entirely sure that's a good thing.

Cash will continue to be #1 for Craigslist/yard sale-type transactions for a long time I'd say.

Would you accept a $1000 or even $500 note from a craigslist transaction?

I'm usually pretty hesitant to accept anything over a $20 or even deal in cash for small exchanges. I wouldn't even consider $500 unless I had a way to strongly guarentee the bill I'm looking at isn't fake.

It would take a bit of time and research before I felt confident enough at identifying these bills to accept them in a trade. I'd have to do a lot of those sort of peer transactions to warrant the overhead of that time.

> It would take a bit of time and research before I felt confident enough at identifying these bills to accept them in a trade.

If such bills were in common use, nearly everybody would know and be aware of the usual security features. So, this is only a problem because such large bills are so rare.

Except that such bills don't see a naturally high amount of use - it's still legal to use them for a bunch of purposes, they're just inconvenient for nearly all uses... Your statement applies better to not-currently circulating modest denominations, like two dollar bills.

Meet at a bank, works for me

Probably 5 minutes on YouTube and a special pen from Amazon

unless it's just a one-off purchase, I feel like a much better strategy would be to pay in $20's and have a fraction of them be fake. if someone paid me with a (hypothetical) $500 bill, I damn sure take at least a minute to hold it up to the light and look for security features. they paid me with 25 $20 notes, I would probably just count them and call it a day. if 10-20% of them were fake, I might not realize until I tried to deposit them.

I think it depends on the cost of counterfeiting a single note. All the security features must add up, and I won't be surprised if the cost, unless you're printing literally industrial quantities, makes fake $20 bills unprofitable to make.

Most of the times I've had to use $100 bills at real stores even they didn't check the security features or use a pen. Something like $500 would warrant more checking.

Eh last few times I’ve done this I used venmo, works great with strangers too

Why won't use something like Visa Money Transfer?

Because unless you want to read someones multi-page terms and conditions you can never know whether they can claw the money back.

I'm trying to think of places that would want to accept $500 to $1000 notes when many places won't even accept a $50 or $100 and consider them "large bills."

Landlords, for one. I'm in the process of leasing a new apartment and I am required to pay some of the fees with a debit card, and some with a cashier's check. It would be easier to just hand them a few large bills and be done with it.

Cash is dying and although I love convenience, I'm not entirely sure that's a good thing.

I try to use cash as much as I can. I also have active checking and savings accounts simply because I don't want to have a single point of failure.

Landlords typically don't accept cash for a variety of reasons. One is fraud but the other main issue is security for holding/transferring that cash and fact they have predictable schedules they'd have cash on hand.

I estimate the building I'm renting from right now would have anywhere between $650-750k or more revenue per month, most of which probably arrives in a one week or less window. That makes them a target for all sorts of potential thefts: employees, residents, burglars.

I've rented at many places and I've never once encountered a landlord that accepted or wanted to accept cash over secure electronic transfer methods, even for minor expenses like a consumer credit report check.

As a landlord, I would want a paper trail of all payments and interactions with a tenant due to the numerous landlord-tenant laws.

The US also had lower denomination bills like the $500 and $1000 until 1969. They were not in much use then

I seem to remember in that era they were useful for some people. My mother worked for a bank in Manhattan and on paydays she would take her check downstairs and cash it, come home with the money in her bra, and then deposit it in our local bank.

Why she didn't just deposit her check, I can't say. Maybe she didn't trust the bank she worked for. Or maybe cash cleared faster than a deposited check.

Maybe she was avoiding having all of her eggs in one basket. If your employer fails you lose your income. If your employer holds your life savings you might lose that, too.

These days we have reliable, trusted deposit insurance, but that didn't exist until the 1930s. People didn't really trust it until a few decades later.

I think they meant why she didn't cash her paycheck directly with her bank, as oppose to cashing out it and then depositing the cash with her bank anyway.

If she cashed it at the issuing bank the money is ready. Is she deposits it at her bank it will be ready in 3-5 business days. ACH transfers take time. Cash deposits do not. If she got paid on a Friday it might be 5 days before she would be able to withdraw.

I used to cash my paychecks at a check cashing store for the same reason. Even though they took a small fee the convenience of having money for the weekend was worth it.

Banks were a lot harder to deal with. They closed at 3 and were shuttered for the weekend.

Switzerland is probably the exception, but 200CHF bills are accepted without problems at most places (1 CHF is roughly 1 USD). There are also the less frequently used 1000CHF bills. I don't remember problems buying stuff with them s well, e.g. at supermarkets, once I bough stuff from IKEA with one such bill.

1chf is about 1 euro but things cost 5 times more in Switzerland than in the surrounding countries.

Canada had the $1000 bill as late as the 90’s.

I was working as a cashier and a Japanese tourist came in and asked if could split it up for him. It would have emptied my register, so I politely declined.

Only time I ever saw one in person.

We had 1000's well into the 90's in Canada. I got to hold one as a kid. Apparently 98% of them have fallen into mafia hands somehow which I find hilarious given our history. Especially since they can't get them back, want them back, and if used they have to be honoured. It must drive certain people crazy.

Not really. The big notes were only for interbank settlement, and usually represented gold or silver.

Once electronic settlement became common, these bills became obsolete.

the real reason why the 500 euro bill has been revoked was that for storing physical money (for banks, in those quantities) would become more expensive in order for the ECB to lower the interest/deposit rate.

next thing will be 200 euro bills revoked, then the base rate can go down to around -1%.

This really is the endgame in ZIRP. Removing the ability to store cash is the only way to effectively get rates into negative territory.

Which is why people should be very much against cashless rules.

In Germany, they are.

As far as I am aware, among all the Euro countries, Germans are particularly fond of cash.

Since I work in an area that is related to finance (think in the direction of planning/writing business applications for the banking sector), I seriously very often get asked (in Germany) whether one should cash out all the money from the bank account and store it in a strong private safe to avoid the negative interest of the banks that are in the wind.

There's a possibility that Deutchbank is bleeding money and the only way for the govt to bail it out without directly inject money is to go cashless, and let Deutchbank charge negative interest.

I mean, there's an easier way to set a negative interest rate on cash. Periodically select X% of the circulating serial numbers and declare that they're no longer valid currency.

In effect this makes X% of cash "burn off" every period, and allows the monetary authority to set any negative effective interest rate that they want.

This is by no means an endorsement of negative rates. But if you're going to go down that road, it's a better scheme than just trying to make holding cash too much of a pain in the ass.

This is too obvious. With the "only criminals use it" argument you have a much easier time convincing people how great the idea is.

Meanwhile, Canada went in the opposite direction. Its polymer notes were 30% thinner than its paper predecessors.

I was storing 500 euro bills under my bed during the 08 crisis. When I moved to the UK, Barclays was the only non shady place that accepted them.

€500 used to be called Bin Laden. Obviously everyone eventually asks: why? Because everyone knows it exists,yet nobody has ever seen one. For the absolutely majority of Europeans it's a pretty useless note.

The crazy thing is that Germany is killing their own banks. They refuse to run fiscal deficits while at the same time they criticize the ECB for lowering rates and hurting the German Saver, when the German Saver is who would benefit if they decided tomorrow to run deficits for the next 10 years.

Be careful what you wish for. I agree with Stieglitz that the Troika has historically not chosen the best path for crisis countries by implementing austerity. My fear with using Fiscal Policy and running deficits is that it is hard for a politician to win a campaign fighting for austerity if and when the debt binge becomes to great. From my own understanding, that is why monetary policy is strongly preferred because it’s easier to roll back but Europe is at their end of Monetary policy. I wish I understood MMT better, it’s something discussed in the circles of parliament and congress but I don’t think the average joe is aware.

Very generally, my gripe with MMT is maybe it could work if well run. I'm not convinced but let's say it's possible. Next step, can we trust politicions to run the program effectively? I suspect they would always try to squeeze more out than practical that would lead to issues... And that's if it would work in the first place.

I'd like to see some countries try it and prove/disprove, just not mine first.

Hasn't Japan already gone through the course?

What course? Would you say they are running MMT, or just closer to than other countries. They have embraced increased holdings for ~6 years. Def the petri-dish but still seems early days.

This is absurd in the context of Germany. They have a fetish with "fiscal responsibility". It'd be the natural inclination of every politician to cut back on deficits (and I imagine within a few years there'd be pressure to).

Germany is a country with a broken military and infrastructure. They should spend money on that. They should cut taxes for workers. There's plenty of shit for Germany to spend money on, and it would cause yields to finally rise.

The ECB has no choice because rich countries refuse to spend money.

I want to be clear that I think the Germans, Dutch and Swedes can afford to do more for the benefits of their own economies and of Europe’s. Germany needs to ween itself off of lignite coal and get better broadband infrastructure as well as contribute more to NATO.

On the other hand in a place like Argentina, I’m not sure what the exit strategy.

I really hate this idea that everyone needs to just constantly be spending. It's useful but there is nothing wrong with having a slow stable fincal conscious ecconomy.

And I really hate the moralizing as if the national economy needs to be run like a household budget.

I think the moralizing is useful if it means future generations aren't going to pay the price for today's profligacy.

This extremely poor misunderstanding of macroeconomics is likely to lead to the outcome you're supposedly trying to avoid.

So... when does the music stop? Some kind of debt jubilee or currency reissue?

Instead future generations are going to pay for today's economic ideology

Creating debt is taking money from the future. There are some discrepancies between running a business and a national economy, but I think the results are still pretty unknown.

When anyone tells you that you should spend your money more, you should have a red flag.

Do you object to people being employed, being productive, and creating value?

Because the way you get that is by spending on it.

This is a really dangerous fallacy.. If you genuinely believe this then you don't even have the economic high-ground.

But a small high level lesson is clearly due, just in-case you attract people who aren't sure.

I can only comment democratic government, so: The government is not responsible for your individual job, your employer is, a government is responsible to make sure you have access to a job, or the ability to create one. After 1 of those requirements has been passed, you pay tax to ensure others can do the same.

Another responsibility of the government is to ensure that the pensions are looked after, probably one of the biggest these days thanks to 'boomers', but they are none the less responsible for it. Thats why the retirement age is decided by government.

Another one they need to look after, trade options, within Europe we're quite lucky, we have a free trade and have all round standards of what we can trade.

Another is infrastructure, if I want to trade a lot, I need infrastructure, if I have a lot of savings; for the people, I will invest in that, thus contributing to all the above.

So: Your question is a joke I guess, mainly because you don't back anything up by your claims.

If you think all you said, lay it out, lets discuss, maybe I'm wrong.

National economies are not households. My spending is your income, and your spending is my income. You can talk about "investment" all you want but without consumer spending there's never any return on that investment and so no one will bother.

Having household savings is good but at a certain point it bottlenecks the economy.

True, but it doesn't seem to really be the problem right now. The overwhelming majority of people don't need to be told to spend money. If they have it, they'll spend it on stuff, for better or worse.

Looking back at the past half century the big variables that have changed to get us here seem to be A) lack of world wars to devastate Europe B) rising automation leading to skyrocketing worker productivity C) society's wealth becoming increasingly concentrated within a billionaire class and D) relatively flat wage growth to spite B. There are also probably a few other's I'm missing too.

TLDR seems like there's a bigger picture to the macroeconomic situation than just spending and saving at the moment. I'm really curious to see how this will shake out going forward.

Apparently Germans do need to be told to spend money.

Spending does't necessarily mean wasting money on short-term consumption. They could also spend on sustainability and infrastructure.

> Europe is at their end of Monetary policy

I genuinely wonder why you believe that? Everything points to the status quo.

The ECB is currently at a -0.5% deposit rate. The SNB is at -0.75%. Perhaps there is room to go down, but the banks are struggling and pushing back.

There's always helicopter money, but yeah, the ECB is pretty much near the end of what they can do.

And on top of that, property prices (both in absolute terms and relative to rent) climbed to stratospheric levels in major cities.

> ... when the German Saver is who would benefit if they decided tomorrow to run deficits for the next 10 years.

The German Saver knows better than most that inflation destroys savings.

Inflation benefits debtors by allowing them to pay back their loans in depreciated currency. Germany isn't exactly a nation of debtors, although most of Europe is.

This is a looming political issue that's only just beginning.

>The German Saver knows better than most that inflation destroys savings.

Yeah this is not the outcome Germany or the EU needs to worry about. It's experiencing Japanese deflation for 20 years.

>This is a looming political issue that's only just beginning.

Yes there's been plenty of hard money cranks that have said this for 10 years since the Great Financial Crisis in the US. Zero Hedge, gold bugs, hedge fund managers, etc have all been sounding the alarm about "money printing" and the deficit. There's no inflation in sight.

> It's experiencing Japanese deflation for 20 years.

GDP per capita (PPP) in Japan has more than doubled over the past 30 years. https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD?locat...

Slow growth is only a problem if you rely on investing to generate your income. Otherwise, even no growth at all is fine.

Have there been any major issues with declining QOL in Japan? It might be a cultural barrier but aside from the deflation stories making the rounds, I don't hear much about them suffering because of it.

They probably don't and economic analysts are probably just bad or lying.

Japanese deflation is brought up a lot. However it didn’t really strike me as a troubled economy when visiting - on the contrary, things looked quite well.

Can someone elaborate on why deflation is so bad?

Deflation is bad because it is a self-reinforcing slowdown in the economy.

The money gets more valuable and the assets get cheaper. so the incentive in every micro-decision is to hoard money and not spend. Why spend when the same thing will get cheaper tomorrow/next week/month/year...?

So, the key factor of the Velocity of Money declines, and the entire economy either grinds or crashes to a (relative) halt.

My understanding is that deflation is also very hard to get out of. Requires massive liquidity injections, and doing that without creating a crisis of confidence by overshooting is tough.

For the current situation, my working conjecture (w/o running hard numbers/models) is that the Great Recession 11yrs ago destroyed so much wealth/value, and was so deflationary, that the central banks may never soon fill the hole with new liquidity. The evidence is that despite nearly continuous quantitative easing and other CB programs, over a decade later, we're still seeing this kind of phenomena - they just can't create & maintain even minimal inflation. Not sure what to do about it, but that's what I see...

(edit: typos)

Deflationary problems seems to me a overblown issue, and the cure may be worse than the disease.

Inflation prevents low income earners from saving, but they aren't in a position to take risk and invest. Therefore, it causes their networth to drop in relation to the wealthy (who can take risks to keep up by investing).

Inflation also keep wages down, as it's easier to pay the same wage , and any increase must be above inflation rate to remain at the same purchasing power.

Inflation also leads to speculation, rather than to invest in productivity increases.

With deflation, you end up not spending as much on discretionary/luxury goods, and only spend the minimum necessary. The prevailing theory is that this leads to slowdown in the economy - but I say it leads to low to zero mal-investments. If you have a high chance that your capital is going to have more purchasing power later, you would only invest in good, known ventures that is not speculative (e.g., building basic infrastructure that has a sound business model, rather than building fad apps).

EXCELLENT synopsis. Also, some consider inflation outright theft from the middle and lower classes or in the least morally questionable.

Of course transient deflation can be a good thing. Adn deflation as we are now accustomed in the tech industry is a very good thing - it is caused by an increase in the quality/supply of available goods, rather than a decrease in the money supply.

However a deflationary spiral of declining money supply (usually created by destruction of value), where labor utilization & wages decline makes things much harder for ordinary people.

That said, I'd like to note the the above answer was to a question about what is bad about deflation. The good thing about deflation may be that it tends to be followed by increasing growth, possibly in no small part because central banks try to do something about it.

> Deflation is bad because it is a self-reinforcing slowdown in the economy.

If you care about the environment, global warming, resource depletion, etc this is a good thing. Are we not currently producing more stuff than can be reasonably used?

> Why spend when the same thing will get cheaper tomorrow/next week/month/year...?

This is exactly how computing technology has been for several decades. Plenty of spending still goes on, because items have immediate utility. Being able to save by buying a loaf of bread tomorrow doesn't matter when you need to eat today.

But this is all conjecture from economic theories that might or might not be true.

There is no inflation? You haven't seen the insanely skyrocketing property prices in pretty much every major EU city? And because rent/mortgage took the lion's share in increased cost in other products it manifested as shrinkflation - https://en.wikipedia.org/wiki/Shrinkflation.

The Japan is failing meme is astonishing. It might have some slight demographic problems, but the solution of increasing the workforce without limits is more a failure of economic analysts than the economy of Japan.

Many countries would kill to have these problems, which might just be completely irrelevant. The numbers from Japan look pretty good.

Deflation isn't inherently good, inflation isn't inherently good. Most popular economic indicators are probably trash.

What good is the EU if its wealthier members are unwilling to subsidize the poorer ones? Germans want the benefits of federation without the drawbacks.

It allows DE to have an artificially devalued currency which benefits their exports.

The EMU is about the federalisation of Europe through the back door.

https://m.youtube.com/watch?v=5TPpuIslzG4

EU isn't really subisidizing anyone - the actual flow of money is from poor towards the wealthy:

https://www.politico.eu/article/what-rich-countries-get-wron...

This confuses public subsidies with private money flows.

Not confuses, just gives fuller picture - the whole deal between old and new EU members was: open up your markets, and we'll give you access to our "cohesion funds" from EU budget. Now you can see who won and who lost on this deal.

Again, it's taxes vs private money. And "the whole deal" really was about a politically unified Europe, the "purely economic union" wasn't a thing anymore when the east expansion happened. That certainly was parts of it, but let's not create alternative history.

Besides, "lost and won" is terribly weird when you just look at money flows but exclude goods. Hey, sell me your $30k car for $1000, you'll be the winner, because you get $1000 from me and we'll not look at the car. Not saying that that's an accurate description of EU-trade, just that it's weird to only look at money flows.

Another problem with that in general is that it's not just about old and new EU members. Luxembourg is an old member, is the tax oasis that works hard to help companies evade taxes in France and Germany, and is also leeching EU subsidies, not contributing to the EU funds.

>Again, it's taxes vs private money.

That's the entire point of the article, the author is not "confusing" them:

>The talks cannot just be about public money, and should not become a brawl between "net contributors" and "net beneficiaries."

> That's the entire point of the article, the author is not "confusing" them

I very much believe they are intentionally confusing them because it makes their point. In a "that's basically the same, don't look too hard, just listen to these huge numbers" kind of way.

While EU does subsidize poor EU countries but we must question what's the impact of that subsidizing.

1. EU is single market 2. Germany micraclously had strong currency at the time EU was created, so Germany businesses bought everything in cheaper EU countries and winners became bigger winners engulfing all small players across whole EU 3. EU taxes winners of the game and sends some money to improve the quality of life in poor nations but this ensures that poor EU nation get trapped in middle range and never surpass Germany.

They've managed to get all benefits of "imperialism" without any of the downsides.

Artificially strong currencies tend to produce trade deficits, not investment surpluses. I know Germans save and invest a lot, but I doubt they can go against such an enticing macro-economic rule.

Savers are bad for the economy at large though because they don't invest in high risk businesses, but rather in low risk assets (RE, bonds, etc) that do nothing for no one. They're like scrooge mcduck swimming in their pile of gold.

Savers are bad for business because liquidity stops when money hits them.

US has such a strong economy because barely anyone save. Japan had so much savings that they literally need exports to survive, there’s no home market to speak of because everyone save so much. Once export tanks, their economy tank.

Exports account for 25% of Japan's GDP. So in all - it has strong local market.

Savers may not invest in high risk businesses, but the opposite of saving is not investing, it's spending, generally on consumer goods rather than on anything "productive". There's a different conversation to be had about how much consumer spending benefits those high risk businesses, but only a fraction of income earned by a business gets reinvested into plant and equipment in any case.

investing is a type of spending

All well and good when youve strong economic growth, but all that stored capital comes in handy when there’s a shock. It provides a way to make money from your less well prepared neighbours ...

But seriously, there’s no harm damping things a bit. Runaway growth can have its issues too. I reckon best is to keep your inflation just ahead of population growth.

What an absurd position. First off, risk isn't the goal, reward is. Risk is just the price of increasing rewards. But we shouldn't mistake the two, or valorize risk itself. Any high risk business not taking risk mitigations available to it is a poor one. And any investor who isn't using low risk, uncorrelated assets to juice their returns is missing out!

Secondly. Bonds are not assets that "do nothing for no one;" they don't sit there in a vault. They are a loan to busineses, and they allow businesses and governments to build factories, bridges, and even other companies. They invite additional capital into the market, which can be used to make more high risk / high reward investments, for a small cut of the rewards. Even savings is a loan to the bank, which recirculates the money with their own loan desk. Negative interest rates in Germany aside, very little money in the system sits in an idle 'pile of gold.'

And that's really the problem here -- electronic deposits with the ECB cost banks money, so they're not using the central bank. The money still exists, and economy is still moving, but the normal holder of cash deposits is charging instead of paying for it. This is why it was theorized that 0 percent was the lower bound on interest rates, so it would be a more surprising outcome if this sort of thing didn't happen.

Not true. The government sells bonds to suck money out of the economy, and buys them back to add more. How the fed operates.

Inflation is like ante at a poker game. Without the ante, everybody would just keep folding until they get the nuts and there would be no action.

> The government sells bonds

Well, it's how the FOMC operates. There's plenty of state and local bonds issued that match the model. But if you want to play the #notallbonds card, be my guest.

Don't banks require "savers" as their source of capital for lending?

In the 1940s and 1950s. Not now, at least for large US banks.

not really tbh https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

That document is widely misread. It's true that the bank doesn't have to wait around for a saver to make a loan (they can borrow from other banks), but at the same time banks do fund most of their loans through deposits. Look at the balance sheet for any commercial bank, and you will see most of their liabilities are in the form of deposits.

>that do nothing for no one

I'm not sure you understand these assets if you think they do nothing. If you want to rent an apartment then someone has to build and own it first. If you want to borrow money for your business then someone has to save money and put it aside so it becomes available to you. Your comparison to scrooge mcduck doesn't make sense because you're assuming that the money will never be used. If your goal is to save 20000€ over 7 years to buy a car without financing then you would be incredibly foolish to put that money into a risky asset. If the stock market crashes the same year you wanted to buy your car the you will need to obtain liquidity by borrowing money from a bank (remember those stupid scrooge mcducks swimming in their pile of gold? now you're begging them to give you money) and getting the car loan you wanted to avoid with the hope that in 3 years the value of your asset recovers and you can finally sell it to pay off the loan.

>If the stock market crashes the same year you wanted to buy your car the you will need to obtain liquidity by borrowing money from a bank (remember those stupid scrooge mcducks swimming in their pile of gold? now you're begging them to give you money)

Are banks not able to in effect create money in todays system?

Banks can create an amount of money beyond what they get in deposits, but that’s limited by the fractional reserve system and the amount they hold as deposits (this makes some simple assumptions, but is mostly true). They cannot create an infinite amount of money by themselves (without a central bank’s intervention).

I'd normally agree but I think I just have more faith in Keysnian economics. You basically pay for today with the future. If you no longer can afford the future, you still have the infrastructure or asset that exists. Normally it isn't a 0 valued item (unless we're talking bankrupt securities, worthless commodities, or education) so even in an economic crisis, there is something tangible that came be used as collateral.

Exactly. It seems that we have unfortunately fixated on over-protecting winners, those that can take their rewards and reinvest them in something that is increasingly reducing to a financial scheme, debt in fact; over-protected, “low risk” and ethically enshrined.

Which is metaphorically like rewarding couch-potatoes.

Rather that letting the winners enjoy their success, while wiping it out in the long term if it’s not funneled towards material investments that can benefit also the “non winners”, with jobs and quality of life improvement.

Seems like the narcissistic Randians are at the steering wheel, and no stepping down in sight

Running deficits is not the same as inflation. There's no place for Germans to save, and its because the German government won't borrow. A sensible policy would be for the German government to borrow and invest heavily in infrastructure. Instead Germany has opted for policies that will cause it to teeter on the edge of recession for decades.

> A sensible policy would be for the German government to borrow and invest heavily in infrastructure.

Or reduce taxation and make everyone but government richer.

That would also work.

There are places for Germans to save but they really dislike investments or any type of risk. Sure, Germany could borrow more and issue bonds but I doubt this would change yields for those bonds so much that investing in them is worth it for retail investors. The demand by institutional investors (insurances, pension funds) easily outweigh retail demand.

Also, how would Germany invest in infrastructure if order books at construction companies are filled 1-2 years in advance? If anything, they'd fuel inflation and price out private investment.

Germans have three choices -- either they invest in risky assets, they increase deficit spending to increase the supply of safe assets, or they accept permanently low interest rates and hoard euros.

> They refuse to run fiscal deficits

Germany has a debt brake law (Schuldenbremse) that limits structural net borrowing to 0.35% of the GDP.

Germany is obsesed with having a trade surplus in good & services. Every Euro that ends up in a bank is one less euro that might be used to buy foreign goods. So they repress spending and the money having no where else to go ends up sitting in a vault or paying for US securities.

Germany is obsessed with keeping the value of the Euro low to maximize their exports. That's one of the reasons they've been pushing austerity after the economic crisis, as keeping countries like Greece, Portugal etc. in a rut depreciates the currency (the other reason is a weird sense that countries in debt have committed some moral failing and should be punished).

Their trade surplus has been a subject of intense criticism by economists and other EU states, but Germany calls the shots in the eurozone economy.

https://www.economist.com/leaders/2017/07/08/why-germanys-cu...

That's nonsense. The reason for low interest rates is so that Italy won't collapse. It's widely hated in Germany as bank accounts have basically zero interest nowadays.

They also blamed Greece for the bailout, which was a bailout of German banks. Yes the situation obviously isn't completely one-sided and there's more than one actor here, but don't pretend Germany is doing everything out of the goodness of its heart and to protect the EU. They're as selfish as any other country.

I heard there was quite a fire sale on pretty Greek islands during that time.

The comment you are replying to said "the value of the euro", not low interest rates. Interest rates are so low not because of Italy, but because the German government stopped borrowing. If you cut the supply of something, the price goes up. If the price of bonds go up, then the interest rate goes down.

In Germany's defense, they never asked for the Euro, it was more or less forced on them as the price for France not pitching a fit about German reunification. Essentially, the rest of the Eurozone is running on Deutschmarks, and calling it the "Euro" instead of the "Deutschmark" is just a face-saving measure. Germany, unlike most other countries in the Eurozone, could announce tomorrow that they were leaving the Euro, and there would be no run on the banks.

There might, though, be a run TO the banks, to deposit your Euros in time to get them magically changed into Deutschmarks.

So, Germany acts like they run the Eurozone, because the Euro runs on Germany's economic status.

Now, why Italy, Greece, etc. continue to remain inside a currency zone that is not appropriately valued for them, is a different question. I would not be surprised that, if the League ever gets control of the Italian government, they will withdraw. But until then, the Mediterranean countries are handicapping their own economic competitiveness voluntarily, it's not as if it's Germany's fault, since it wasn't Germany's idea.

The Euro is quite popular in Germany and has gained popularity in recent years. It wasn't very popular at the start but this has definitely changed.

And if Germany got rid of the Euro this would certainly cause bank runs since Germans would be afraid that the Euro quickly devalues against the new currency.

The problem in italy is deeper than just the euro. The euro is just one of many factors but it has a higher visibility because it is beyond the control of a single country. Italy can only blame itself for all the other problems. This also applies to other countries in the eurozone.

This kind of talk is irresponsible. Debt isn't free, you pay interest on it, you children might have to pay interest on it. Debt introduces systemic fragility. If the only way to grow your economy is rising public debt, something is fishy.

Negative interest rates are long time lethal to financial institutions such as banks and insurance companies. Hoarding printed paper is just a hilarious side effect, but the reality is that under negative rates the financial institutions are, at best, delaying their inevitable bankruptcy.

https://moneyandmarkets.com/jeffrey-gundlach-negative-intere...

This makes sense to me, but I don't see democratic countries able to stop themselves before it's too late.

What comes after?

This exact problem is why I liked Bitcoin a few years ago. Although with the scaling issues, it seems less useful than I expected.

Democratic in what sense? I don't think any country asks their citizens what about their financial issues.

All political parties have an economic policy and the voters try to elect governments that reflect their views.

Do you think raising the block size would create more issues? Although it seems BTC is committed to layer 2 scaling solutions.

Raising the block size creates numerous issues, especially for nodes running on consumer systems with limited storage (which is most), and the network starts to become more centralized. We don't want the majority of nodes becoming SPV clients/pruned nodes, due to full blockchain storage costs.

I don't see why Germany doesn't handle it the same way as the Bank of England where the chief cashier signs special notes called 'Giants' worth £1,000,000 and 'Titans' worth £100,000,000. These are obviously only used for inter-bank transactions.

Wouldn’t that undermine the point of negative rates?

Better to just charge interest on cash stored at banks.

The US has considered doing this for other reasons. It’s an interesting idea.

https://en.m.wikipedia.org/wiki/Trillion-dollar_coin

Large notes were used like this in America as well - up until 1934 we had up to 10k notes.

It's my understanding the larger ones were mostly used for storage or transfer?

https://en.wikipedia.org/wiki/Federal_Reserve_Note#Large-siz...

Why do they need paper money anyway? Is there something more legitimate about a piece of paper with many 0s on it vs redundant electronic storage of record?

They don’t need the pile of cash, and are free to burn it if they want and just write down in an excel sheet: “today we burned 2 billion euros”, now the question is if you’re willing to have your salary paid out in a digital recognition that you now own a part of that burnt cash, because you feel comfortable that others would allow you to pay using those IOU’s of no longer existing cash.

If not, then the current system where the digital records refer to actual cash still needs there to be actual cash somewhere. Normally you’d have it in the national bank, but since they started charging it’s better to stockpile paper.

That's a very helpful illustration, thanks.

I guess it seems...funny to me that the one level of abstraction (paper money representing the power to exchange goods and services) is so much more preferred to the other (digital representation of that power). Already now, most of my money is represented as a digital recognition that I own part of a pile of cash that I will never actually take physically.

Can someone explain to me why central banks find it so hard to create inflation? It seems to me that the difficult direction should be convincing people that your currency is worth something. Making your currency lose value should be easy, shouldn't it? If Google wanted to tank their share price they would have no problems.

Well, the simple answer is that they’re actively fighting inflation for political reasons.

I'm not so sure about that RE Google share price.

Even if they were to magically slice 20% of the share price, it would immediately start a buying rally. Anything that would have a permanent effect on the share price would probably have to threaten the very existence of the company.

It's not hard doing it in an absolute sense. E.g. drop a bomb on yourself. It's hard doing it without messing everything else so much as to not be worth it.

I suspect the problem is creating only a little bit of inflation. Hyperinflation is easy, just ask the Weimar republic.

Or Zimbabwe or Argentina even ... but I think these extremes are absurd. They are blunders. What we are talking about here is why EU isn’t taking prudent steps to provoke growth, and that’s all down to keeping certain dominant nationa happy.

* Cries in pesos

The reason they managed to create hyperinflation is because when you print more currency, inflation doesn't immediately change in reaction.
So they ended up printing more and more till, it all corrected at once and hyperinflation was already here before they could roll back their currency printing machines.
They took a practical approach to managing inflation yet paying off debt obligations with more currency but didn't realize it all could backfire - they didn't do something as stupid as others will have you believe.

what simple mistake did the weimar republic do that caused a hyperinflation? I thought it was primarily caused by a massive reduction in the supply of goods following the versaille treaty without a corresponding reduction in monetary supply. At that point there really wasn't a lot the government could do to stop it.
Zimbabwe faced similar problems after disowning their most productive agricultural providers, reducing supply.

Mostly because of the world war they waged, they created bonds and then printed more and more currency to pay it off, creating hyperinflation.

Inflation can spiral out of control and be very difficult to control if it does.
It's a tiger that you don't want to let out of the cage.

I don't know if I'd agree its something you can't make useful, but trying to use inflation as a means of macroeconomic policy - rather than an indicator of the success/health of the overall economy - seems utterly dangerous.

Usually, fear. People hoard cash when they're afraid of a crash. When a crash happens, money becomes more valuable, so they can buy things more cheaply. People who anticipate a crash risk provoking one by removing money from the supply.
So central banks try to counter that: "Your money will be worth less in the future, so spend it now. Or make an investment that will produce returns greater than the rate of inflation." So they spend their money, creating demand, and jobs materialize (hopefully) to fill that demand.
For the last decade-plus we've had a combination of anticipation of disaster, and banks flooding the system with cash to assuage that fear. That's like pressing both the accelerator and the brake as hard as you can -- you don't go anywhere until suddenly something gives, and then the entire thing goes to hell in a handbasket right quick.
When? If I knew that, I'd be rich. The general advice is that the market can remain irrational longer than you can remain solvent.

My tip is 5 to 6 years.
But who knows?

That's what I said... ten years ago. So we all know what my opinion is worth.

I heard an interesting podcast a little while back that conjectured the typical way to get inflation going (so-called "helicopter money" to the spending population) is far and away the least predictable way to do things. Specifically, the speaker argued that compared to large banks and investing entities, people might do things like pay off debt or save the cash for a rainy day... neither of which are inflationary.
That isn't to say that handing out wads of cash wouldn't eventually lead to inflation, but that the systemic lag and second-/third-order effects might make the process so unpredictable that by the time inflation begins to tick up, the central bank would have no way to provide effective control.

It's not difficult to create inflation, if that's your objective, though it's not quite as simple as increasing the money supply by a fixed percentage and is obviously politically difficult.
It's much more difficult to create economic growth by persuading banks to lend more.

Inflation isn't just about money supply (no matter what certain people on the internet tell you), it's about money velocity. If the central bank prints a hundred billion dollars but it immediately gets stashed in vaults or under people's beds or in international tax havens, it might as well not exist and there's no inflation. The "pushing rope" metaphor for inability to create inflation is a good one.

I think liquidity might have been the word you were looking for, but your example was not an increase in money supply. Creating money and storing it in a bank account increases supply. Creating money and adding it to a banks reserves increases supply. Withdrawing cash and permanently storing it somewhere decreases supply. Increasing reserve requirements decreases supply. If the amount held in reserve goes up because a bank doesn’t want to loan, or charges too much for it, that decreases supply.
Inflation is entirely about the supply and demand for money. You were just calculating it wrong.

Most economists look at the velocity and supply in order to calculate inflation for their models. If you want combine them into supply and demand, fine. But seperating the concepts is valuable. Moreover the velocity and liquidity of money are seperate concepts.

Well in Germany's case they believe the economic conditions (inflation) were a cause of Hitler's rise to power, and are understandably extremely skittish about triggering similar conditions
https://en.wikipedia.org/wiki/Hyperinflation#Germany_(Weimar...

both the weimar era hyperinflation and hitlers rise to power were caused by the conditions of the versaille treaty.

There are many factors and others have pointed out some of them. Here's another one:
The dollar's relative value to goods and services isn't rising... and it's because of countries like China that make goods and services for so few dollars.
Think about it - I can go to oldnavy.com and buy a shirt for $9. That shirt was made literally on the other side of the world, shipped, marketed, sold, packaged and delivered for $9.
The disparity in incomes and environmental protections between the U.S. and other countries makes it very difficult to trigger price inflation. And things just keep getting cheaper. Prices don't rise when supply of goods and services keeps pace with the demand from dollars.

Because central banks don't direct how the money is spent. The central bank puts money into the system but it's up to fiscal policy makers to determine flows -- in the US laws lead to inflation in asset prices.

Central banks are creating inflation, problem is it's in all the wrong places - e.g. asset inflation - instead of a rising CPI. (There is a bit of a debate taking place in central banking circles at the moment about whether CPI is an adequately measure, and whether it should better reflect things like rent increases; FT's Alphaville blog has had a number of interesting articles on the topic over the past week).

They don't find it hard, because it's trivial: just restrict imports (i.e. available inventory). If there are less things to buy, inflation will rise as people "compete" to buy whatever is available. When you hit your target inflation number, relax the restriction on imports to reduce the inflation. Season to taste.
This policy likely has 2nd and 3rd order effects, as it will hurt other countries, but that's a simple strategy to artificially create inflation in CPI items that's fail-proof in execution. Prices will go up.
Restricting imports is much better than just giving people money, because they can use the extra money you give them on things like paying down their debt, or just put it in the bank and save it. Instead, you want to target the things they already buy and make those things scarce, so their price goes up (the definition of "inflation"). Food, fuel, and electricity are the easiest to monkey with because people are always buying them, and don't have much of a choice.
(If you can't restrict imports (or don't want to), you can simply print money to buy up the local inventory yourself and trash it/warehouse it/export it out of the country/set it on fire. The effect is the same: less inventory for the general population is available, causing the price of whatever is left to go up.)

Or like in India - make imported oil/gas expensive and inflation goes up.

This is a sure sign that government paper is crowding out private investment and destroying the eurozone economy. This is solvable through higher inflation.
https://medium.com/@b.essiambre/the-world-deserves-a-pay-rai...

Surely the banks have to declare how much cash they're holding. Couldn't they just be forced to pay negative interest on that?
..or give the money to someone else for a while so they can do something with it.

>Surely the banks have to declare how much cash they're holding. Couldn't they just be forced to pay negative interest on that?
Could they? With appropriate legislation/government action, of course.
>..or give the money to someone else for a while so they can do something with it.
You are talking about forcing them to invest the money. And what happens if that person cannot pay back what was lent to them? If there were any available investments that were safe enough, the banks would be tripping over each other to make that investment, believe me. Hoarding money costs the bank money. Investing it is not only free, but it turns their money into more money. If you were to force them to make unsafe investments, then that risk is essentially passed onto the people who deposited their money in that bank, in the form of potentially not being able to withdraw their money.

This may be a stupid question...but is there a paper dollar corresponding to every dollar I have in my bank account?
I always assumed that some of the currency issued by governments was exclusively digital.

No, most is digital, but there have been some interesting attempts
https://en.m.wikipedia.org/wiki/Trillion-dollar_coin

Most banks are required to keep 10% of the deposits
https://www.investopedia.com/terms/f/fractionalreservebankin...

Electronically, in an account at the Federal Reserve

They have to hold 10% of deposits overall, not in physical currency.

The accounting is tied to the Federal Reserve by mere bookkeeping for the bulk of it. If the banks are short on cash, they have the fed just print it for them.

This is what I imagined and would seem to prevent the vault-size problem.
Interesting.

You don’t have dollars in your bank account, you have your banks promise to give you dollar if you ask.

> but is there a paper dollar corresponding to every dollar I have in my bank account?
No.
> I always assumed that some of the currency issued by governments was exclusively digital.
They aren't even really issues by the government for the most part. While government policy shapes the framework in which money is created, much is created by private lending.

Additionally, the cash limit to anonymously buy gold is now 2.000 Euros (since Jan 2020). https://news.bitcoin.com/germans-rush-to-buy-gold-as-draft-b... You need a lot more space to store 10.000 € in cash than in gold.

why would banks care if it is anonymous?

banks don't care but the cash owners do. If you have 10.000 euros in cash and buy gold (in order to save space in the vault) the transaction will be registered. The government gets all details (name, date, amount etc). Instead if you put the 10.000 euros directly in the vault nothing will be tracked.

you seem confused, did you read the article? I don't know about German laws but if you deposit $10k in a US bank you are definitely tracked and not anonymous. Also, no "cash owner" would buy gold to save vault space. The incentives don't make sense.

One of the main points is mentioned in the article:
> Germans were already well known for their love of physical money and data privacy.
I think the most important point here is privacy. If you deposit $10k into a bank account, of course you are tracked. But if you put the $10k into a bank vault you are not tracked.
> Also, no "cash owner" would buy gold to save vault space.
Saving vault space is only one of the reasons. Gold is more stable than cash.

the cash in bank vaults mentioned in the headline come from cash deposited into accounts. nobody in this situation is putting cash into a safety deposit box.
banks can't just convert their cash to gold because if gold were to drop in price then they wouldn't be able to cover the money they owe their account holders.

Why in the world does Germany not have a decent VC/investment industry? Seems like some companies and people are loaded with cash but they'd rather keep it in a bank than risk it on a new startup. You're not going to get many innovative startups doing that...

The standard explanation to this question is that Germans are risk-averse. People don't trust stocks but better want to save their money in a savings bank book. (That won't cover the whole situation, it's rather a two sentence summary)

Historic risk aversion. The two wars, the DDR, the Eurozone.
Germans have experienced over and over again that they can't count on the government to make good decisions for their money. I know quite a few who try to keep their bank balance always around a zero and invest the money they have in other forms of storage they feel more ownership about (i.e. real estate).

Oh, I still recall my time in Switzerland, where you could walk into any store and pay with a 1000 CHF bill and nobody would even look at you.

I guess that’s why the smart money in the US is buying stock in banks and financial corps. They are expecting euros to leave the EU and invest in US financial products

Why don’t they hold T-notes and accept the eurodollar exposure? Seems better than cash, imo.

It's because they are storing zero euro notes: https://www.thelocal.de/20180418/karl-marxs-birth-city-sells...

I have plenty of space in my basement. Call me. Low rates!

Wait, the Germans are hoarding money again? Should I be alarmed? The UK just exited the EU.

Money is a commodity, but you don't want it to behave like one. That's where fiat currency comes in.
Inflation, or at least the threat of it, prevents hoarding. It has a realistic and useful effect on value in that it makes money decay over time.

There's also a long-standing rumor that the Germans have warehouses full of Deutschmark notes all printed up and ready to roll out, in the event of a currency Armageddon with the Euro.

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