$100 bills remain one of America’s leading exports

Cash is not even close to dead. A recent report (pdf) out from the Federal Reserve Bank of San Francisco finds that the amount of U.S. currency in circulation has been soaring in recent years:

But, writes SF Fed President John C. Williams, there's a bit of a paradox here. The amount of dollars in circulation continues to grow dramatically. But cash transactions have actually been shrinking as a portion of the U.S. economy in recent years. That's odd. What are people doing with all these dollars if not using them? Stuffing them in mattresses?

Well, sort of. As it turns out, most of those dollars are going abroad. Over at Economix, Bruce Bartlett points out that by far the biggest growth in cash in circulation has come from $100 bills. And an estimated two-thirds of those $100 bills are parked overseas. Many are no doubt used for black-market purchases and other illegal transactions. But many are simply held onto as savings, particularly in volatile nations like Cyprus or Greece.

Either way, $100 bills remain one of America's leading exports. That has plenty of benefits for the United States. "It’s like borrowing money from foreigners that most likely will never have to be paid back, at zero interest," Bartlett writes. But it also has interesting implications for monetary policy:

Many economists believe that inflation results largely, if not exclusively, from an increase in the money supply, much of which consists of currency, the rest being bank deposits, travelers checks and other forms of money.

But if much of the money supply circulates abroad, then any analysis correlating the money supply to domestic economic activity may be distorted and provide false conclusions.

Bartlett's full post is worth reading, as is the original SF Fed study. And here's a fascinating older story on how North Korea does plenty of business counterfeiting $100 bills.

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Dylan Matthews · April 9, 2013

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