mardi 23 février 2016

Hoarding cash

Just came across this Zerohedge article: "Safes Sell Out In Japan, 1,000 Franc Note Demand Soars As NIRP Triggers Cash Hoarding".

Hoarding cash may sound a like a good idea currently, with low price inflation and negative interest rates.
However, it is a big mistake to put Swiss Francs as cash into a safe. You may forget about it and have a bad surprise when you want to use or convert your nice pieces of paper in the future.
Here is the explanation in four charts.

1) Base money and 1,000 CHF banknotes (y-scale limited to 80Bn - click to enlarge chart)

The amount of cash hoarded as 1,000 CHF notes (CHF 71 Billion) is now much larger than the entire monetary base as in summer 2008 (CHF 45 Billion). First "Uh-oh". In case you are thinking "So, what ?", ask yourself what might be the value of this additional cash. The answer is: nothing. Again: this cash is backed by nothing. The market and especially the people hoarding cash into safes are not (yet) aware of that, fortunately for them (for now).
Now, what is the entire chart of base money (in the chart above, the y-scale is limited to 80 Billion) ?

2) CHF Base money (log scale - click to enlarge chart)
Second "Uh-oh". Again, this new money is backed by nothing. It is sold against foreign currencies by the Swiss National Bank to Mr Market who is thinking "Wow, the Swiss Franc, it must be rock-solid! The mountains, the gold, the army - what can be wrong ?"
With the foreign currencies, the SNB is buying bonds and equities in EUR or USD with more or less success.
Oh, a detail. The y-scale of chart 2 is logarithmic: there is a doubling at the crossing of each horizontal line.
With a normal scale, it looks like this:
3) CHF Base money (lin scale - click to enlarge chart)
Now a last one, if you did not have enough charts:

4) CHF and ARS Base money (pre mid-2014: one data point per year for ARS - click to enlarge chart)
Happy hoarding!

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