We’ve written many times about the move toward a cashless society, in which physical cash would become either obsolete or illegal (probably both) and all payments would be made in digital form with credit cards, debit cards, smartphones and other forms of electronic money. The motivation for this is to lock consumers into easily traceable electronic payment systems that can be frozen or locked down with a few keystrokes in the event of a financial panic or run on the bank.
The other benefit of digital money is the ability to impose negative interest rates because you won’t be able to protect your wealth by pulling cash out of the bank and stuffing it in your mattress (or a local nonbank vault). Yet a funny thing happened on the way to a cashless society. Cash is back!
As described in this article, there has been a surge in the volume of $100 bills in circulation. There are currently 12 billion $100 bills in private hands, with a face value of $1.2 trillion. For the first time, the number of $100 bills in circulation exceeds the number of $1 bills.
Economists are unsure what’s behind this sudden popularity. Most expect it has to do with criminal activity including drug sales, tax evasion and money laundering. No doubt that’s part of the story.
A more powerful explanation may not have to do with criminality but with everyday citizens just trying to protect their wealth from hacking, digital confiscation, frozen accounts and failed banks. Another driver comes from capital controls, which prevent citizens from moving their funds abroad.
A suitcase full of $100 bills on an airplane is a simple solution. One million dollars in $100 bills weighs exactly 22 pounds and fits neatly into a small suitcase or backpack in the overhead compartment. (By way of contrast, one million dollars in gold weighs about 50 pounds at current market prices.)
Governments will not give up on their efforts to make all money digital, but for the time being citizens are fighting back with physical $100 bills!
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