The Swiss Franc, just to take an example, comes in denominations up to 1000 Franc ($1083 at current exchange rates).
According to this site: http://www.pagetutor.com/trillion/index.html $100M fits on a pallet stacked 3 feet high or so. With banknotes worth 10x as much, that'd be a billion Swiss francs.
It's hard to believe it is going to cost you 8.12 million francs to securely store that for two years, which is what you'll currently pay for the privilege of owning the two year Swiss bond.
Remember a single fire could destroy that if you just stacked it on a pallet. I agree 8.12 million is probably too much, but even handling e.g. USD $1 billion costs a lot (you have to bring them from the central bank I suppose?). Even having a company that has enough capital and is trusted enough costs a lot of money.
I think the principle shouldn't be "Interest rates will never go below zero", but "Interest rates have a lower bound", which still stands I suppose.
Well then what is the lower bound? The standard way to prove inequalities that should exist in a free market is through showing arbitrage patterns. This way one can prove f.eg. that a call option should never be more expensive than the underlying security, or that a call plus a put is essentially a futures contract.
How do we show the lower bound on bond yield rate? Arbitrage executed through a company that employs exhaustive security measures allowing its clients to store pallets of cash? It still depends on time-varying factors, such as employee costs, utilities, the probability of a random natural disaster or the probability of a fire wrecking the entire building.
Yes, that lower bound is a function of all those things: security costs, labor costs, etc. They can be laboriously approximately quantified. But it surely exists: for example, it's inconceivable the rate to ever reach -30% because storing money will never get that expansive in normal conditions (please discount apocalyptic scenarios).
According to this site: http://www.pagetutor.com/trillion/index.html $100M fits on a pallet stacked 3 feet high or so. With banknotes worth 10x as much, that'd be a billion Swiss francs.
It's hard to believe it is going to cost you 8.12 million francs to securely store that for two years, which is what you'll currently pay for the privilege of owning the two year Swiss bond.