Wednesday 24 February 2016

Cash could become the next "security"

We hear frequently about the phrase, "negative interest rates" these days. Around the world, almost all central banks are now putting their efforts to lower their interest rates and some have set their base rates below zero already. If we really have negative returns on everything, including government bonds, saving interests, stocks and bonds, then why don't we hold some cash? Cash could be seen as a security with no change in its nominal value forever and it could also be seen as risk free. Moreover, the money we save in bank accounts is "digital liquid asset", there is price for digital credits to buy cash. This price could change over time. However, once you buy a certain amount of cash, it stays its nominal value forever. For example, you have $100 "digital liquid asset" then use it to buy $100 cash, once you buy the $99 cash, your $99 cash values $99 forever; however, if you hold $100"digital liquid asset" in your bank account, when your bank has a -2% interest rate, your asset value will decrease to $98. To conclude, once negative interest rates become normal in our life, cash will become another type of security.

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