The Boom in Benjamins – IMF F&D
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Bibliographic details
- Authors: MELINDA WEIR
- Published: June 1, 2019
Overview and headline facts
- In 2017 the $100 bill overtook the $1 bill in circulation volume for the first time in history.
- The $20 bill is in third place.
- According to the Federal Reserve, there are more $100 bills circulating now than ever before, roughly doubling in volume since the global financial crisis.
- Nearly 80 percent of $100 bills—and more than 60 percent of all US bills—are overseas, up from roughly 30 percent in 1980.
- The average American keeps only about $60 in cash on hand (Federal Reserve Bank of Atlanta 2018).
Explanations for rising demand
- Safe-haven demand
- Overseas demand for US dollars is likely driven by its status as a safe asset (Fed economist Ruth Judson).
- Cash demand, especially from other countries, increases in times of political and financial crisis.
- International demand for US dollars increased over the 1990s and into the early 2000s, stabilized or declined after the 2002 debut of the cash euro, and then renewed in late 2008 with the global financial crisis.
- Geographic and crisis-driven use
- High-value, globally accepted currency is especially important in unstable regions, conflicts, refugee crises, and where distrust of local currency exists.
- Underground and anonymity considerations
- The underground economy, the informal economy, and the criminal economy contribute to the appeal of large denomination bills (IMF Assistant General Counsel Nadim Kyriakos-Saad).
- Concerns about traceability with increasing digitalization may drive some demand; privacy and desire for anonymity can be legitimate reasons for cash use.
- Kenneth Rogoff: high-value notes are often used to avoid taxes and regulation and for illegal activity; underground demand may also rise when interest rates and inflation are exceptionally low.
- Dollar dominance
- The dollar has the largest share of notes held outside its home country; the dollar’s role as the dominant international reserve currency may be the key.
- Rogoff: “The dollar is now the only global currency; the euro has stalled, and the renminbi is decades away from challenging.”
Policy debate and international experience
- Proposals to phase out high-denomination notes
- Some economists (including Rogoff and Lawrence Summers) advocate phasing out high-denomination paper currency to discourage tax evasion and corruption.
- International precedents and outcomes
- Reserve Bank of India withdrew the 500 and 1,000 rupee bills from circulation and stripped them of their status as legal tender in 2016, with disruptive effects.
- The European Central Bank stopped producing and issuing the 500 euro note in early 2019.
- Reasons for retaining the $100 bill
- Expense of replacing $100 bills with a higher volume of $50s.
- Possible economic repercussions from withdrawing the $100 bill.
- Reduction in seigniorage: a $100 bill costs the government 14 cents to produce, generating profit; Rogoff argues losses could be offset by decreased tax evasion and crime.
Data and literature cited in the piece
- Haasl, Thomas, Sam Schulhofer-Wohl, and Anna Paulson. 2018. “Understanding the Demand for Currency at Home and Abroad.” Chicago Fed Letter 396, Federal Reserve Bank of Chicago, Chicago, IL.
- Judson, Ruth. 2017. “The Death of Cash? Not So Fast: Demand for U.S. Currency at Home and Abroad, 1990–2016.” Board of Governors of the Federal Reserve System, Washington, DC.
- Rogoff, Kenneth. 2016. The Curse of Cash. Princeton, NJ: Princeton University Press.
- Sablik, Tim. 2018. “Is Cash Still King?” Econ Focus, Federal Reserve Bank of Richmond, Richmond, VA.
Melinda Weir, “The Boom in Benjamins,” F&D Magazine, June 2019.
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