
German banks are hoarding so many euros they need more vaults - prostoalex
https://www.bloomberg.com/news/articles/2020-01-31/german-banks-are-hoarding-so-many-euros-they-need-more-vaults
======
njarboe
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](https://en.wikipedia.org/wiki/500_euro_note)

~~~
TremendousJudge
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

~~~
wolfgke
> 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.

This is what they want the citizens to believe.

~~~
Mountain_Skies
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.

~~~
dmurray
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.

~~~
Scoundreller
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.

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

~~~
Scoundreller
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.

------
Despegar
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.

~~~
aazaa
> ... 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.

~~~
blazespin
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.

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

~~~
ahakki
not really tbh [https://www.bankofengland.co.uk/quarterly-
bulletin/2014/q1/m...](https://www.bankofengland.co.uk/quarterly-
bulletin/2014/q1/money-creation-in-the-modern-economy)

~~~
QuesnayJr
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.

------
H8crilA
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...](https://moneyandmarkets.com/jeffrey-gundlach-negative-interest-
rates/)

~~~
marriedWpt
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.

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

~~~
rabuse
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.

------
Angostura
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.

~~~
dickjocke
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?

~~~
boublepop
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.

~~~
dickjocke
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.

------
OscarCunningham
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.

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

~~~
rusk
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.

~~~
econcon
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.

------
BenoitEssiambre
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...](https://medium.com/@b.essiambre/the-world-deserves-a-pay-
raise-302f25efd82a?source=friends_link&sk=cb180b2cf186b263b6c6c70ad29bc36e)

------
ginko
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.

~~~
TheSoftwareGuy
>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.

------
iambateman
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.

~~~
jdc
Most banks are required to keep 10% of the deposits

[https://www.investopedia.com/terms/f/fractionalreservebankin...](https://www.investopedia.com/terms/f/fractionalreservebanking.asp)

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

------
mrsun
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...](https://news.bitcoin.com/germans-rush-to-buy-gold-as-draft-bill-
threatens-to-restrict-purchases/) You need a lot more space to store 10.000 €
in cash than in gold.

~~~
metalliqaz
why would banks care if it is anonymous?

~~~
mrsun
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.

~~~
brokensegue
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.

~~~
mrsun
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.

~~~
brokensegue
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.

------
jotm
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...

~~~
ktpsns
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)

------
iagooar
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.

------
bawana
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

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

------
robocat
It's because they are storing zero euro notes:
[https://www.thelocal.de/20180418/karl-marxs-birth-city-
sells...](https://www.thelocal.de/20180418/karl-marxs-birth-city-sells-zero-
euro-bills-for-his-200th-birthday)

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

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

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IanDrake
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.

------
Turing_Machine
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.

