Tuesday, November 27, 2018

econlife - The Cash We Love to Stash by Elaine Schwartz

Each year, the Federal Reserve decides how much cash to print. The new bills are primarily used to replace whatever is too tattered or worn out. Meanwhile, the old ones are withdrawn from circulation.

Below you can see the Fed’s 2018 print order. Only the $20s exceed the new $100s they are creating this year:

Why We Want $100 Bills

The $100 bill just became the most popular kind of cash. For years, the dollar was in the lead. No longer:

For many reasons, a $100 bill is a handy denomination. Because of the financial crisis and low interest rates, people have more cash. It makes sense that whatever cash we stash under the mattress is in large bills.

Similarly, $100 bills are the note of choice for the “informal,” underground economy. Explained in a Harvard Business School paper, they are universally acceptable, they retain their value, and they are easily transportable. Add anonymity to that list and you get the perfect currency for illegal transactions. Similarly, the $100 bill is ideal for people in countries with unstable currencies.

It is also easy to ship $100 bills. In 2012, The Atlantic said we send pallets, each with 640,000 $100 bills, to destinations outside the U.S. Because financial intermediaries pay for those bills–called seignorage–we make money when we “export” them.

Finally, you might be thinking that we live in a digital age. However, people do want to continue using cash–more so in some places than others:

Our Bottom Line: What is Money?

Small rectangles made of cotton and linen, sea shells, or massive stone disks are considered money if they have three characteristics:

  • A medium of exchange: People accept it as payment.
  • A unit of value: People know what it’s worth.
  • A store of value: Its purchasing power is relatively stable over time.

Like the $100 bill, these huge limestone disks on the Micronesia island of Yap have also functioned as money.

My sources and more: Quartz reminded me it was to look again at the $100 bill and at who uses cash. From there, you might want to see the Fed’s money order and more about the Yap. But returning to the $100 bill, The Atlantic and this HBS paper had the detail.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.