They probably can point to the paper notes as Tier1/Tier1-Quality assets in order to comply with regulations... and avoid the negative rate payable on Reserve Assets instead... just have to pay for safe storage of the notes...
German banks are stuffing vaults with money to help offset the mounting cost of negative interest rates, and some of them are running out of space https://t.co/wyJHoVdV95
— Bloomberg Markets (@markets) January 31, 2020
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Let's hope there's date stamps on those notes since the MOST a risk-free* asset should return is ZERO percent. Otherwise, we have welfare proportional to account balance - a moral abomination. Subtract overhead costs and an instant maturity premium and we find that the return on Central Bank notes, along with account balances at the Central Bank, should be firmly NEGATIVE**.
*Yes, bank notes can be stolen but otoh they offer advantages such a privacy, use during emergencies, etc. so let's just call it a wash wrt theft risk, especially with banks and time-locked vaults.
**Except for an individual citizen exemption up to a reasonable amount in debt/checking accounts at the Central Bank itself.
Yeah the paper currency doesnt pay interest (which is actually negative currently)
US paper notes issued by Fed increased a lot too when they kept rates at 0.25% as I think the "issued rate" might have actually been negative after dealer spread on the very short term bonds...
I wouldnt be surprised to learn US banks were doing some of this same thing when Fed had rates at 0.25% for many years...
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