Demand for high-denomination U.S. bills is not slowing down, despite less demand for cash in general.
The number of outstanding C-notes has doubled since the financial crisis, according to the Fed. But it’s probably not due to real demand to spend those large bills.
Growth in U.S. bills between $1 and $20 was much weaker at about 2.6 percent year over year. That slowed from 3.6 percent a year earlier. The weaker demand for small currency is likely due to a rise in mobile payments.
To put the demand in perspective, the rise in $100 bills was three times higher than the increase in small bills. That suggests that these large bills are being used more as a store of value, as the U.S. dollar continues to be the world’s reserve currency.
For the most part, economists believe the surge is due to people around the globe wanting to hoard cash — a similar force that’s boosted interest in cryptocurrencies. High-denomination currency notes are known as a preferred form of payment for criminals, given the lack of a transaction record, anonymity, and the ease with which they can be brought across borders.
Nicholas Colas, co-founder of DataTrek Research who has been tracking the $100 currency boom for about a decade, said he was expecting it to slow slightly. That has yet to happen and as he pointed out, we’re approaching the point where every human being on the planet could have two $100 bills in their pocket.
“Demand as a store of value far exceeds the demand for transactional cash,” Colas said. “It does lead to challenges if you want to track and deal with corruption, or not paying your taxes, or any of any other thing that cash also incidentally enables.”
While evidence is anecdotal and happens on a country-by-country basis, Colas said crime and use on the black market is a contributing factor in demand.
Some economists have called for the abolition of high-denomination bills. Lawrence Summers, a former Treasury secretary and director of the National Economic Council in the White House, wrote an op-ed in The Washington Post in 2016, citing its potential for crime.
A “moratorium on printing new high denomination notes would make the world a better place,” he wrote, citing a Harvard research paper written by Peter Sands, former chief executive of the bank Standard Chartered. Sands also argued to scrap the high-value currency notes. Eliminating them “would make life harder for those pursuing tax evasion, financial crime, terrorist finance and corruption,” Sands wrote.
The Fed is likely not eager to ease the printing of dollar bills. Colas pointed out that it helps the U.S. remain a reserve currency, and therefore more valuable.
Most of it is overseas. A 2018 research paper from the Federal Reserve Bank of Chicago estimates that 60 percent of all U.S. bills and almost 80 percent of all $100 bills are now abroad. That total is up from 15 to 30 percent around 1980, according to research from Ruth Judson, a Federal Reserve Board economist. Judson found that political and economic instability contribute to this demand.
Colas said the Federal Reserve and Treasury are not incentivized to scale back production as long as they profit off of printing bills, then selling them offshore. It’s also helpful from a policy perspective.
“It does reinforce the notion of reserve currency status, which is tremendously useful to American monetary policy and foreign policy,” Colas said. “There’s a desire to keep printing these things.”