[mywittyname]

Well, the pile of money that exists is much, much smaller than the value of everything in the economy. So at some level, it's not possible to convert your holdings to cash and sit on it. You need to hold "cash" in the form of bonds.

Even if you could hold paper cash, you'd still need to store and secure it, which costs money.

When looked at through that lens, it makes more sense. Rather than giving someone a loan that you expect to get paid for the risk, you're asking them to hold your money for a while, and they are expecting to get paid for the risk (of having to pay you back more in real terms than you lent them).