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Why the Share of $100 Bills in Circulation Has Been Going Up for Over 40 Years

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The short answer is that a lot of money is spending a great deal of time outside the United States.

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The bills might circulate as payments in more developed countries, however. Payments for what? Well, that touches on any number of elements of what has been elegantly named "the informal economy." That is, the markets that function without the costs (taxes) and benefits (legal protections) of the state. Feige writes:
US currency is a preferred medium of exchange for facilitating clandestine transactions, and for storing illicit and untaxed wealth. Knowledge of its location and usage is required to estimate the origins and volume of illicit transactions. These include the illegal trade in drugs, arms and human trafficking as well as the amount of 'unreported' income, that is, income not properly reported to the fiscal authorities due to noncompliance with the tax code.
Large bills in outside currencies are indeed known to be a problem. In 2010, UK exchange offices stopped selling €500 notes, after police officials said 90% of the notes sold in the UK ended up in the hands of organized crime. Doesn't this present something of an ethical quandary for the US, if its largest bills are the currency of choice for criminals outside the US? It would seem so.

Cynics might point out that on the other side of that ethical quandary is fact that printing and selling money abroad is a remarkably profitable little business for the US government. Yes, that's right. Like all governments, Uncle Sam earns a profit, known as seigniorage, on the printing of money. And that profit cuts-slightly-the amount the US has to borrow from the public to keep the lights on. Some economists describe foreign holdings of US money as effectively an interest-free loan to the US. Feige writes:
Domestic seigniorage earnings (based on the fraction of US currency held at home) simply represent a redistribution of income from US currency holders to US taxpayers. On the other hand, seigniorage earnings on currency held abroad represent a net transfer of real resources from foreign currency holders to US taxpayers.
Nonetheless, the spread of plastic as a means of payment planetwide seems to be nibbling away at this handy source of revenue. In the 1980s, the US earned a net profit of around $14 billion a year (pdf, p. 35) on seigniorage; by 1999 it was up to $25 billion; by 2010, it was back down to $20 billion. Oh, well-it was never going to be enough to solve the US deficit anyway.

This story by Matt Phillips originally appeared on Quartz.

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