Econintersect: According to Ruth Judson, much of the printed currency of the United States is in the form of C-notes. The second largest denomination is $20. The latter demonination is the one which is very commonly the currency of choice to carry around in wallets and purses. Referring to the pie chart (click on graphic for larger image), applying the percentages to an “average U.S. wallet” and assuming all currency was in domestic hands, Econintersect comes up with the following composition for that wallet if it contained $800: 6 $100 bills, 1 $50, 6 $20, and $32 in some combination of $1, $5 and $10 bills. (Due to rounding the total is actually $802.)
Of course the average U.S. wallet contains less than $800. Perhaps $100 to $200 when full and spent down to a few dollars before “reloading”. The widespread use of credit and debit cards has greatly reduced the need to keep much “cash on hand”. So once we don’t count illegal transactions, such as for recreational drugs, there is not a lot of use for currency above the petty cash level in the U.S.
Judson infers that the data indicates that much of the U.S. $100 bills are held overseas where U.S. currency is considred a more stabke form of liquid asset than many alternatives. Her data shows that currency held outside the U.S. has grown by 70% more than the amount held domestically over the past 22 years.
Global Economic Intersection contributor James D. Hamilton has observed:
That growth represents one important benefit that the U.S. has received from having a currency that is regarded as a safe and stable store of value. In effect, the growth in foreign-held dollars has meant that the U.S. government has been able to buy hundreds of billions of dollars worth of goods and services without ever needing to tax its own citizens or borrow in the form of interest-bearing Treasury securities.
Which is a great deal, as long as those foreign holders don’t change their minds and try to dump that currency back on us.
Sources:
- Crisis and Calm: Demand for U.S. Currency at Home and Abroad from the Fall of the Berlin Wall to 2011 (Ruth Judson, Board of Governors of the Federal Reserve System, International Finance Discussion, Papers IFDP 1058, November 2912)
- Who is holding all those U.S. dollars? (James D. Hamilton, Econbrowser, 10 April 2013)
