http://www.zerohedge.com/news/2016-02-08/fed-lacks-legal-authority-computer-systems-physical-cash-implement-nirp-according-fe
More curious is that as the Fed's paper admits, "the Federal Reserve computer systems used to calculate and manage interest on reserves do not currently allow for the possibility of a negative IOER rate, although these systems could be modified over time if needed.""There are several potentially substantial legal and practical constraints to implementing a negative IOER rate regime, some of which would be binding at any IOER rate below zero, even a rate just slightly below zero. Most notably, it is not at all clear that the Federal Reserve Act permits negative IOER rates, and more staff analysis would be needed to establish the Federal Reserve’s authority n this area."
... at sufficiently negative IOER rates, DIs might opt to shift a significant quantity of their reserve balances into currency. Present Federal Reserve inventories of currency, at about $200 billion, would not be adequate to cover large-scale conversion of the nearly $1 trillion in reserve balances to banknotes
Reserves were $1 trillion 2010: they are now over $2.5 trillion, implying the cash shortage would be about 2.5x time worse now than five years ago.
Incidentally, the threat of a cash shortage, and the warning that "if rates go negative, the U.S. Treasury Department’s Bureau of Engraving and Printing will likely be called upon to print a lot more currency as individuals and small businesses substitute cash for at least some of their bank balances", is one we noted first over a year ago when we first brought attention to the NY Fed's note "If Interest Rates Go Negative . . . Or, Be Careful What You Wish For."
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