We’re an increasingly cashless society. So why is there more cash than ever?

The proliferation of credit and debit cards, Square, mobile payments, Paypal and other technology means good old paper currency is dying, right?

Wrong.

The economic and financial upheaval of the past half-decade has made people in the United States and all over the world hungry for U.S. dollars – the paper kind.

On June 26, the amount of U.S. currency in circulation reached an all-time high of $1.19 trillion, according to the Federal Reserve.

What’s been driving this trend? Fear, probably.

When the recession and financial crisis hit in 2007 through 2009, the total currency in circulation skyrocketed, even as the U.S. economy was shrinking. As this chart from the Federal Reserve Bank of San Francisco shows, the currency level also has jumped at other financially stressful moments, too, such as before Y2K.

The chart gives a little more insight into what’s happening. The total amount of currency is increasing, but the use of smaller denomination currencies, $50 and below, is leveling out, probably because people are using alternative methods of payment for everyday transactions.

On the other hand, shunning their banks and brokers, people in the United States and abroad are storing more of their money in the form of $100 bills, as this chart from a paper by Federal Reserve economist Ruth Judson shows:

John Williams, the president of the San Francisco Fed, which oversees much of the central bank’s currency systems, has written recently on this topic. He describes the battle between electronic payment technology and the human desire for good old cash in worrisome times as a “tug of war.”

“From the point of the view of understanding what drives currency demand, historically we’ve tended to focus on alternative payments and technologies like credit cards and other payment systems,” Williams said. “The lesson of the last five years are that those trends can easily get swamped in the short run by swings and concerns about political stability and financial stability.”

There is no precise way to measure how much hard currency is within the United States, given how easily cash moves across borders. Economists believe that a large amount of the demand for U.S. paper currency has come from abroad, given global financial instability. Here's another chart from Judson.

In the United States, banks hold some of the cash. But most is held by individuals—in safety deposit boxes, under mattresses, in wallets. Williams estimates that Americans held about $400 billion in cash at the end of 2012.

That’s nearly $1,300 per American.

Zachary A. Goldfarb is a staff writer covering the White House, focusing on President Obama’s economic, financial and fiscal policy.
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