Banning Benjamins

by Jacob Maichel

As someone who just started using mobile banking at 24 I may be biased, but I think we will remove large bills from circulation in the near future. I was amazed to learn that in 1976 $100 bills made up only 25% of the money in circulation, rising to about 80% today. Though inflation may be able to explain some if this phenomenon, it still is an astonishing statistic. To account for all these $100s every person would have to possess about thirty-six $100s. This is not thirty-six for each working age adult, but also children, seniors, and every single one of the 325,000,000 people in the United States.

Physical cash encourages crimes that would be difficult if not non-existent without it. The two main types of crime cash enables are profit-motivated crime and tax evasion. Profit-motivated crime is crime in which cash allows people to escape detection by authorities. Some examples of these are human trafficking, drug dealing, and illegal gambling.

For profit-motivated crime, criminals need to be able to convert smaller bills they receive illicitly into large bills for easy storage and transportation. Thus, it is interesting to see where the Federal Reserve sends the majority of its large denomination bills. There is practically no demand for them here in the Midwest but border states, in which much of the illegal drug trade operates, hold almost all demand for large bills. Large-denomination bills allow for massive cash transactions. One million dollars in $100 bills can fit in one briefcase and weighs only twenty-two pounds, removing the largest bill would dramatically increase the difficulty to move large quantities of cash.

Sure, other items such as diamonds, can be a way to store criminal assets but they are much less liquid than traditional cash. Cryptocurrency provides a possible alternative but is much more traceable. Perhaps an all-digital economy would help keep transactions honest and deter criminal activity, but there are other options.

There are, of course, merits to the use of physical cash. Keeping smaller denominations is important for a few big reasons. Chiefly it allows consumers to retain some level of anonymity by “staying off the grid”, making untraceable purchases of a few hundred dollars. It also financially includes the homeless, some of which who survive on small donations from the public.

Perhaps we could even replace paper money with coins. Removing large bills and using coins for smaller purchases certainly makes it much more difficult to transport large amounts of money. The coins also last significantly longer then their paper counterparts, helping the government maintain a stable money supply.

Although the transition would have to take place over an extended period of time, a less cash-dependent society may not be as far off as we believe. Singapore’s central bank is pushing commercial banks to do away with any cash and South Korea plans to be cashless by 2020. South Korea has a program already in place that allows people to pay cash and the change is deposited to your bank account. A similar program could help us phase out big bills and deter cash-reliant crimes.

Jacob C. Maichel is a Graduate Assistant at the Gwartney Institute and an MBA student at Ottawa University