TPT July 2013

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Global Marketplace
76 July 2013
Economics
A significant but mysterious
phenomenon: 65 per cent of
all US $100 bills circulate
outside the country
Writing in the “Economix” blog of the New York Times, Bruce
Bartlett recalled the theory that credit and debit cards and
electronic bill-pay should make cash superfluous. Instead, as
a new report from the Federal Reserve
Bank of San Francisco makes plain, cash
has not only held its own but continues to
grow in popularity.
According to that report (“Cash Is Dead!
Long Live Cash!”), as measured in dollar
terms there is 42 per cent more US
currency in the form of cash in circulation
today than there was five years ago. To
Mr Bartlett, an economics historian and
conservative columnist, a key factor is
the decline in interest rates, which has
reduced the “opportunity cost” of holding
cash relative to such interest-generating
assets as bank deposits, money market
funds, and Treasury bills.
Mr Bartlett also takes note of some
less wholesome promptings. Many
economists, he wrote, believe that the
rise in cash is strongly related to growth
in the so-called underground economy:
tax evasion by people working off the
books, as well as criminal activity.
Evidence for this proposition allegedly
lies in the distribution of cash holdings by
denomination. Some 84 per cent of the
increase in cash since 1990 has been in
the form of $100 bills, which in 2012 had
risen to 77 per cent of the value of cash
outstanding, from 52 per cent in 1990.
The “Economix” blogger, who said his
use of $100 bills is confined largely to
Christmas gifts for nieces and nephews,
places an ominous construction on these
data. He wrote, “Studies and common
sense suggest that those people most
likely to use large bills are doing so for
nefarious purposes, especially drug
dealing. One can easily fit $1mn in $100
bills into a briefcase.”
A profitable export
Mr Bartlett also called attention to a rise
in the amount of US currency being
exported. And, according to the San
Francisco Fed, the great bulk of US
currency held abroad is in $100 bills.
Indeed, some 65 per cent of all ‘C-notes’
in existence circulate outside the US.
(“America’s Most Profitable Export Is
Cash,” 9 April)
its membership of the European Free Trade Association and
the European Economic Area.
› Currently there are two giant trade deals under
discussion, both pivoting on the US: the Trans-Pacific
Partnership being negotiated between Washington and a
host of Asia-Pacific nations, and a comprehensive trade
and investment agreement with the European Union. China
is party to neither the Trans-Pacific Partnership nor the
negotiations between Europe and the US. With the Doha
Round of talks under the World Trade Organization largely
moribund, Mr Jolly of the Herald Tribune pointed out that
some nations have been seeking partnerships below the
global level.