[onaraft]

The gist of it is that if you have 1, 10, or even 100 thousand dollars in cash, sure you can sit that in your bank and probably earn ~0% interest, but at least it's not negative.

But if you have 100M in [edit: $your_native_currency], you aren't going to put it in a retail bank account, you're not going to put it in your mattress, and so you have only a few options:

1. Stocks/derivatives: If you were holding cash already, you're probably not comfortable with the risk profile of any of this stuff

2. Bonds - this exposes you to the slight negative interest rate

3. Corporate bank account - you might be able to avoid a negative interest rate here as well, but only because you're passing the buck (literally) to the bank, who then has to pick 1 or 2.

4. Actually use the money yourself, in your business.

The whole point of the NIRP (negative interest rate policy) is to push people to pick 3 or 4, and if 3, then for the banks to pick 1 or 4.

I just reread your question, and realized I didn't fully answer it. Investing in foreign bonds exposes you to exchange rate risk. I was sorta hand-waving it into 1 since it's basically like doing both bonds and forex. Not very appealing if your risk appetite is "preferably cash or govt bonds".

I feel obligated to include a disclaimer that this isn't investment advice and that monetary policy is immensely complicated and this is just the high-level thinking of the point of NIRPs.

[foobarian]

I think 1. is not too bad with some kind of index fund. Even during the recessions the value will not vanish - and historically it recovers eventually.

My current worry is the holding company - e.g. what if Merrill Lynch goes bankrupt? There is a very small amount that is FDIC insured but the rest could go poof.

A mattress might work better for this use case, but I figure if it comes down to that we'll have bigger problems.

[onaraft]

In general, you don't need to worry about Vanguard or Schwab or whoever provides your particular index fund going bankrupt. The actual assets in the fund don't go anywhere. Whoever buys the remnants of your now-presumably-dead brokerage would probably just carry on maintaining the fund, or it would cash you out if it didn't want to continue to run the fund.

On the brokerage side, SIPC insures securities in much the same way FDIC insures deposits, but the amount insured is significantly higher, though I don't know it off the top of my head. And beyond that, regulations require brokerages to hold client assets separately from the broker's assets, and this is audited. So for the most part, SIPC is mainly overseeing the transfer of securities from a dying brokerage to somewhere else.

So, for the most part, the risk you describe is more about inconvenience than actual material loss.

[hajile]

That seems like a risky strategy. The gamble would be that the government loses loan "revenue" in the short-term and makes up with business taxes. Is that a good gamble in weak or service-oriented economies? What are all the risk factors there?

[onaraft]

To be clear, this is a central bank thing. The part of the government issuing debt doesn't technically have a say in it.

The Federal Reserve bank sets the Federal Funds rate. This is their "target rate" they will try to hit. They accomplish this by using their position as the central bank to "print" (not literally, it's a credit system, I'm hand-waving) money to bid on bonds. In the same way that lots of investors clamoring to lock-in rates on long bonds can bid their yield down, the federal reserve using their funny money to bid on treasuries also bids their yield down. And when the fed wants the rates below zero, they bid them to below zero. These are called "Open Market Operations".

[somebodythere]

> The part of the government issuing debt doesn't technically have a say in it.

To be fair, there is no economic law that says this has to be true. It is just true, today, in countries like the USA. It's very possible we reach a point where central banks work together with the government to directly purchase and monetize government debt. It seems absurd today, but so did negative interest rates 20 years ago.

[bryanrasmussen]

I guess the negative is also tax deductible. so there might be an additional reason there?

on edit: punctuation

[asah]

bitcoin! /s