REPLACE statement removing commas from a money convert... I do NOT want it to do this

The style you've applied is being overridden by the implicit conversion to a plain old varchar. Those commas were never really there.

You should being doing your formatting in your presentation layer, not in the database.

Try this instead:

SELECT CASE WHEN @val < 0 THEN '(' + CONVERT(VARCHAR, ABS(@val),1) + ')' 
            ELSE CONVERT(VARCHAR, ABS(@val),1)
       END

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