Is there too much cash? That sentence might look a little suspicious to some. How could there be too much cash? How could a consumer have too much money to spend? Well, cash itself is far from the only payment method in the market. Consumers have the option of traditional checks, credit cards, debit cards, paypal, apple pay and more. Having cash does offer some comfort for off the grid and immediate payment; and while only the more radical economists push for eliminating cash altogether, there is a growing number suggesting governments reduce the quantity of cash in circulation, particularly the larger dollar notes.
The reason for the reduction is many economists see a trend among law abiding citizens preferring to pay with plastic while criminal activity such as basic robbery, drug dealing, and money laundering are all conducted exclusively with cash. A popular cash exclusive crime in the United States is Tax Evasion. In 2005 the government deficit was $250 billion but $385 billion in taxes went uncollected: “Richard Cebula and Edgar Feige in 2011 found that as much as 18% to 19% of all taxable income earned in the U.S. goes unreported—illegally depriving the government of nearly $500 billion in revenue.”
It was this trend that led to the European Union to begin phasing out the 500 note (commonly referred to as the Bin Laden bill) from circulation back in May.
Earlier this year the former Secretary of Treasury Larry Summers addressed the issue. In a Washington Post Blog post he wrote that moving one million dollars in 500 euro notes ways just over two pounds. Summers argues that eliminating the 100 and 50 dollar bills would make money laundering more difficult for criminals just by sheer volume and weight. For example attempting the same stunt of moving $1 million in the United States with just twenties would weight over 50 pounds.
Larry Summers’ plan would not have much of an effect on most Americans. For one, he does not want to collect and replace all existing notes, simply cut off production of future bills. It would be a difficult measure to eliminate all 100 dollar bills since there is over 1.38 trillion circulating the globe in bill form. Secondly, up to two-thirds of existing 100 dollar bills are outside the United States. It is not a common bill in the States.
It is understandable why there would be resistance to a move like this. Government distrust is at a high and with the financial crisis not even a decade old cash can offer a person a sense of off-grid security. This is also far different from when the Treasury Department discontinued the $500, $1000, $5000, and $10,000 bills in the 1960’s. A $100 bill is attainable for a large portion of Americans who might not feel comfortable having a government infringe on what they can spend.
Criminals will adapt if a plan like this is ever implemented. But is that a good excuse to not try? In 2013, Stephanie Mihm of Bloomberg wrote how Bitcoins were used by criminals online to anonymously sell drugs. This scheme was also seen in the film Dope, where three high school students and a hacker set up a digital store for people to purchase drugs using online currency. However, two years later the FBI was able to take down its first Bitcoin drug kingpin. Criminals will always look for a new avenue to work through, but it doesn’t mean we should make life easier for them. Perhaps a serious look at the reduction or total removal of the $100 bill is in order. Are we that attached to it or do we just not like being told no?
Ari Goldfarb is not affiliated with Raymond James. Views expressed are the opinions of Ari Goldfarb and the Financial Advisors at Goldfarb Financial and not necessarily those of Raymond James. The information does not purport to be a complete description of the securities, markets, or developments referred to in this material, is not a complete summary or statement of all available data necessary for making an investment decision, and does not constitute a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.