The United States government is having a little trouble printing up its newly designed $100 bills. More than 1 billion of these new Benjamins are unusable because they crease in the presses, leaving blank spots on the final product. It’s an amusing minor story whose true significance has been missed. Why does the world need 1 billion $100 bills? Indeed, why does the U.S. continue to print C-notes at all?
In May 1976, an economist named James Henry published a wonderful essay in the Washington Monthly titled “Calling in the Big Bills.” In it, he observed that “only two kinds of activities in the U.S.” required the use of large-denomination currency. One was tax evasion, and the other was organized crime. Henry might also have added certain legal but morally dubious needs, like a compulsive gambler’s need to hide his addiction from his family or a billionaire braggart’s need to light his cigar with a flaming C-note (though the latter type is probably a creature of myth). In his 1976 piece, Henry proposed that the Treasury and Federal Reserve call in all bills of $50 or more and require holders to exchange them in banks for $10 and $20 bills.
Thirty-four years of inflation make Henry’s inclusion of $50 bills seem perhaps overzealous, but, otherwise, his argument has become more compelling, not less. Technological change has reduced much further the plausible need of any law-abiding American to carry a C-note in his wallet or to stash a pile of C-notes in his mattress. Demand for $100 and $50 bills is “so weak,” observes David Gorman, author of the 2007 book, Cashless Money, “that banks do not stock [them] in their ATMs.” Flash a $100 at the typical American retailer and you’re liable to inspire befuddlement on par with that described in Mark Twain’s short story “The Million-Pound Banknote.” (You probably won’t enjoy the same pleasant fate enjoyed by Twain’s hero, who, because no one can break his note, never has to pay for anything again.)
Today, when you ask economists and government officials why the $100 bill still exists, they probably won’t mention its domestic use. Instead, they’ll talk about its popularity overseas. Thirty-four years of globalization have shifted most demand for C-notes offshore. Roughly two-thirds of all U.S. currency is held today in other countries, mostly in large denominations. In 2001 the Federal Reserve estimated that 90 percent of the $100 bills ordered by the Federal Reserve (which accounts for the overwhelming majority of C-notes ordered nationwide) were paid out to foreign banks “to satisfy foreign demand.” The overseas share of $100 bills has slackened a little in the new century relative to domestic demand—probably because the C-note is becoming more popular with illegal immigrants here—but today 65 percent of all Benjamins are in foreign hands. The $100 bill may be America’s most successful export. But guess what? Foreigners have fishy reasons for holding onto C-notes, too!
The basic economic transaction between the United States and the rest of the world (especially China) goes as follows: They give us automobiles and computers and baby strollers and in exchange we give them dollars, the most stable currency in the world. But usually foreigners don’t want physical dollars to stash under their mattresses. Paper bills don’t generate interest! Instead, foreigners want American money in the form of bank deposits, which do generate interest, and in Treasury notes, which generate more interest, and maybe even in U.S.-based corporations or real estate, which have the potential to create more wealth still. An economist I know recently visited China as a consultant. “I told them to buy up all of Washington, D.C.!” he told me gleefully.
Some foreigners, though, would prefer to hang onto paper dollars, because they don’t want anybody to know they have American bucks. In a few instances, that’s a justifiable survival strategy. As Michael S. Derby put it in the Dec. 8 Wall Street Journal, “The dollar is often king in nations with troubled or historically dysfunctional domestic economies.” If you live in a corrupt country that’s likely to seize your wealth, you might be forgiven for wanting to hide Benjamins from the authorities. Or you might not want to use them to pay taxes. Paying taxes is every citizen’s obligation under a morally legitimate regime, but what higher purpose would be served by paying taxes to Nazi Germany or apartheid South Africa?
But the world’s oppressed probably don’t account for very many of those C-notes, because oppressed people aren’t known for their ability to accumulate vast quantities of cash. Most of the foreign Benjamins, it seems safe to assume, are in the possession of kleptocrats, drug lords, warlords, oligarchs, terrorists and assorted other varieties of extremely nasty and powerful people. It doesn’t make a lot of sense to expand their supply of covert cash. One of the reasons the C-note was recently redesigned was to make life harder for future counterfeiters. North Korea has manufactured about $5 million worth of fake C-notes. But if you really want to shut down high-denomination counterfeiters (who by definition get the most bang for their buck), the simplest solution would be to stop issuing high-denomination currency at all. Then all crisp new Benjamins would be counterfeit.
So why do we keep printing $100 bills? As with any valuable export, we worry that if the C-note ceased to be available to foreign criminals and dictators, another paper currency would take its place. The leading candidate would be the 500 euro note, which criminals have reportedly nicknamed “the Bin Laden” because its compactness makes it so convenient to hide ill-gotten gains in. Granted, the euro is having a bumpy ride at the moment. But it will come back, and when it does, it will stand ready to take the dollar’s place wherever and however it can. Indeed, it’s not inconceivable that, should American presses stop spitting out $100 bills, the 500 euro note might one day replace the Benjamin as the preferred currency of America’s criminal class.
But that doesn’t seem a particularly noble reason to keep printing the damned things. Back in 1969, the U.S. government started worrying about the sketchy doings of people who trafficked in $500 bills. You know what it did? It stopped making them.
