Something peculiar has happened. Since 2017, the U.S. $100 bill, the one with Benjamin Franklin on it, has surpassed the $1 bill as the most widely circulated currency.
In some countries, cash is on its way out. Sweden has gone almost cashless. According to a Pew Research Center study, almost a third of the population of the U.S. goes an entire week without touching cash.
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Digital finance requires that people believe that the value stored on their phones, credit and debit cards, electronic terminals, and cryptocurrency wallets is not only real but safe.
It's in the financial interest of businesses to go cashless. Not having to handle cash speeds up customer transactions, eliminates the temptation for employees to steal, reduces tax evasion, and creates a safer environment for employees.
As of December 31, 2018, the breakdown of U.S. banknotes was as follows:
- $1 - 12.4 billion
- $2 - 1.3 billion
- $5 - 3.1 billion
- $10 - 2.0 billion
- $20 - 9.4 billion
- $50 - 1.8 billion
- $100 - 13.4 billion
- $500 - $10,000 - 0.0004 billion
- Total - 43.4 billion
Notes in denominations higher than $100 were available before 1969, but not since.
The 43.4 billion in banknotes in circulation represent an estimated $1.76 trillion, which is 8.2% of the gross domestic product (GDP) of America. This is the highest percentage of GDP in over 36 years.
Before the 2008 financial crisis, currency in circulation represented only 5.6% of GDP.
According to the Bank for International Settlements, the amount of currency in circulation in emerging economies, such as Russia, China, and India, has been declining as a percent of their GDP. Still, it is increasing in the U.S., EU, and Japan.
A study in 2018 conducted by the Federal Reserve Bank of Chicago estimated that 60% of all U.S. bills and almost 80% of all $100 bills are outside the U.S. In 1980, that figure was 15% to 30%.
What's causing this puzzling trend?
1. Government bonds and savings accounts are yielding very little, or nothing, in interest.
If interest rates go to zero or even negative, it will cause people to withdraw their money from banks, turn it into cash, and stuff that money into their mattresses.
2. As anybody who has watched a TV show about drug cartels, such as Netflix's excellent series Narcos, can tell you, criminals hoard and deal in cash, preferably U.S. $100 notes.
The U.S. dollar, the British pound, the euro, and the Swiss franc are criminals' preferred currencies. On January 27, 2019, the European Central Bank stopped recirculating its 500-euro note. Because of that stoppage, the notes are currently trading at around $575.
3. Something that the U.S., EU, and Japan have in common is their aging populations.
Observations show that older people like dealing in cash, so when they make up a larger percentage of a country's population, currency holdings go up.
As of July 1, 2015, the percentage of people aged 65 and older in the U.S. stood at 14.9% of the population.
4. Interest rates in emerging economies are higher than those in the developed world.
5. People are losing faith in financial institutions. The spike in cash began right after the 2008 worldwide financial crisis.
News of Wells Fargo's fake accounts and unreasonable fees have also driven people toward cash. However, the biggest reason may be the recent thefts of personal information experienced by banks and credit reporting agencies.
The 2017 data breach at credit reporting agency Equifax exposed the personal information of over 147 million Americans. The company is currently offering compensation of between $575 and $700 million to those who were affected.
How long do bills stay in circulation?
According to the Federal Reserve:
- $1 - 5.8 years
- $5 - 5.5 years
- $10 - 4.5 years
- $20 - 7.9 years
- $50 - 8.5 years
- $100 - 15.0 years