Over the past few years there have been talks about finally eliminating from circulation the 100 dollar bill. While this might seem like a surprising decision for most, the truth is that changes in the way Americans use cash nowadays presents some issues that, eliminating this bill, could potentially solve.
With cash no longer being king and bank cards (both credit and debit) being responsible for most of the recorded operations, it seems redundant to worry about a piece of paper that many think is close to disappearing, but reality is a bit more complex. Even if cash transactions have fallen on the wayside, they still make up a significant portion of all monetary exchanges, both in volume and in quantity, and the 100 dollar bill is a big part of them.
Reasons to eliminate the 100 dollar bill
Regular people think of the economy as a transparent set of circumstances, but the fact is that cash is still most prominent within the black market and the underground economy. Professor Kenneth Rogoff of Harvard University has one of the best arguments supporting this fact, stating that, that although a large portion of these bills are located overseas, there is still enough in domestic circulation that it could be fueling criminality. This phenomenon highlights the nature of fiduciary paper money, which Rogoff describes as a “crippling monetary policy.” This risk, combined with the fact that 60 percent of financial transactions in the United States are conducted through electronic means, suggests that reliance on cash is on the decline.
And while his theory may seem far-fetched, it has been accompanied by plenty of illegal activities to corroborate. A prominent example is the propensity of the 100 dollar bill to be counterfeited. North Korea, one of the most complex countries to understand, started a criminal racket counterfeiting 100 dollar bills and using them both in legal and criminal activities, causing issues in the economy.
This bill has a high enough value that the payoff is worth the risk, but it is of low enough denomination that it can still be used in regular transactions pretty much everywhere where cash is accepted. In other countries where higher-denomination bills are in use, the likelihood of those being counterfeited is lower, as they are not readily accepted in most establishments.
Another important aspect when considering the 100 dollar bill is the so called “denomination effect,” a cognitive bias that affects how consumers spend their money. Professor Helen Colby of Indiana University has found that students tend to be more reluctant to spend a 100 dollar bill compared to various lower-denomination bills. This behavior highlights how high-denomination bills can be perceived as more valuable and therefore less likely to be spent.
Finally, the durability of the 100-dollar bill, which can remain in circulation for more than a decade, contrasts with lower-denomination bills, which wear out in less than two years. While this might not seem significant, there have been efforts supported by the Department of Treasury to eliminate damaged bills from circulation by instructing financial institutions and retailers not to accept them as payment. This is an effort to crack down on counterfeit cash as damaged bills are harder to verify, but this could mean that good 100 dollar bill forgeries could be in circulation for a very long time before they are plucked out of the economy.
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One of the potential solutions suggested is to put back into circulation the 500 dollar bill, as it would have some of the protection methods of the 100 dollar bill, plus a lot of the inconveniences of using high-denomination bills, while still being legal tender. We will have to wait and see what solution the authorities come to regarding the issue.
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