Written by I think the situation is even more confusing when you have old and new notes circulating together outside the country where they are legal tender, as will be the case with the US $100 bill. How is your typical South American drug dealer or Somali pirate supposed to know which bills are real and which are fake? Try and pay with one of the new bills with extra anti-counterfeiting features and you might get your head blown off let alone an afternoon with Bournemouth plod.
Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke unveiled a new $100 bill equipped with two new security features. The bill will go into circulation Feb. 10, 2011.
[From U.S. Unveils New $100 Bill – WSJ.com]
There is currently around $890 billion in $100 bills in circulation, two-thirds of which are outside the U.S. This represents an interest-free loan to Uncle Sam that is heading towards $1 trillion. At 5% per annum, that’s $50 billion per annum to the Federal Government for doing nothing. These notes are not, of course, actually “in circulation” but stuffed under mattresses in various parts of the world. In fact, even in the US already you can’t actually use them for some retail transactions. In that great TV comedy “30 Rock“, comedienne Tina Fey (as her character Liz Lemon) was at one point complaining that “the ATM gave me a $100 bill… it’s like Confederate money, no-one’s going to take that”.
This is something we’re seeing quite a bit of already, as the majority of stores don’t accept $100 or $50 bills, even in some cases $20 bills, because of an increase in counterfeit money. The biggest growth area for cards in the coming years will be in transactions of $20 and under.
[From The future of e-payments – The Globe and Mail]
As the noted futurologist and savant Andy Warhol wrote way back in 1975…
“if you give anybody a hundred–dollar bill in the SUPERMARKET, they call the manager”.
Why bother redesigning high-value bills with expensive security features? Why not just scrap them? Do we really need a 500 euro note, for example. It’s good to know that the European Central Bank is providing much needed relief to struggling pharmaceutical supply-chain managers in Latin America, but is that central to the goals of European monetary union?
Central and South American cocaine traffickers collect the 500-euro notes because they are easier to transport, Russell Benson, the Drug Enforcement Administration’s regional director for Europe and Africa said. A million dollars in $100 bills weigh about 22 pounds (10 kilograms), while $1 million in 500- euro bills at the current exchange rate of about $1.38 per euro weighs about 3.5 pounds, Benson said.
[From 500-Euro Bill Lifts Crime Risk, Bank of Italy Says (Update1) – BusinessWeek]
In the face of considerable evidence about the link between high-value notes and organised crime, tax evasion and corruption, why on Earth would the Federal Reserve continue to print them? Well, one reason might be the fact that it costs them only eight cents to produce a $100 bill: who wouldn’t want to be in that business? More than just central banks, it would appear! The same economics appeal to counterfeiters, which is why there is a continual arms race between the two. Some counterfeits are easier to spot than others, naturally. As an aside, some good tips for a would-be counterfeiter are to make copies of Federal Reserve notes that actually exist and not to draw attention to yourself by spending $1 million notes.
Malaysian police have arrested a Lebanese man allegedly carrying fake currency with a face value of $66 million after he tipped a hotel staff with a $500 note, an official said Friday. The largest U.S. note currently in wide circulation is a $100 bill. But police found bundles of $1 million, $100,000 and $500 notes in the man’s hotel room in Kuala Lumpur on Sunday, said Izany Abdul Ghany, head of the city’s commercial crime unit.
[From $500 Tip Leads Police to $66 Million in Fake Bills – ABC News]
OK, so it’s an easy mistake to make, forging non-existent US bills, but the hotel staff will at least have been aware that the US is real, even if the bills weren’t, so his plan had a chance. But what about forging paper money from alternative currency zones? Perhaps if he had tipped the hotel staff with 500 Brixton Pound notes he would have got away with it.
An obvious question that arises, not just in Brixton but any community introducing its own local currency, is the issue of crime: what’s to stop counterfeiters scuppering the whole scheme? Transition Towns Brixton has spent £2,000 designing and printing the bank notes, which will be available in £1, £5, £10 and £20 denominations… “We’ve invested in high-security paper,” Nichols says. “Our notes are as safe as the Bank of England’s; the notes have holograms and foil strips. And we’ve printed lots of £1 and £5 notes, as we want the currency to be as liquid as possible to help deter crime.”
[From Will the Brixton pound buy a brighter future? | Environment | The Guardian]
How does being “as liquid as possible” deter crime? I would have thought that criminals find liquidity one of the most appealing characteristics of cash. Anyway, surely I can’t be the only person who thinks it would make life much easier all around just to forget about the paper money once and for all.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]
Dave,
I recently got a modest stack of 500 euro notes from the bank and took them to France on holiday. They fit neatly into a wallet, but were otherwise a royal pain. Very few places would accept them. At one point I had to use the ATM to get smaller notes to spend.
I’m still happy to hold the 500 euro notes. Cash is a comfort when trust in governments and banks is deteriorating.
In Econ 101 we learn that money has two functions. The 100 euro note is a better medium of exchange, but the 500 euro note is a more efficient store of value.
Greeks have been withdrawing record amounts of cash from their banks and transferring record sums to non-Greek banks. Given that it’s all euros, you might wonder why? They do it because cash and non-Greek deposits are safer from either seizure by the government or default by a failing bank. They will not be left illiquid, unable to buy food or pay the electricity bill like Northern Rock depositors.
If all money were electronic, there would be little that the citizenry could do to protect itself against a corrupt government, a defaulting bank or an irresponsible central bank. And any one of these would lead to a collapse in confidence which is the real point of money.
It is because Saddam seized the funds of his political enemies, razed the banks in regions that revolted, and issued the Saddam dinar to inflate away his debts that the US dollar was the most popular currency in Iraq at the time of the 2003 invasion.
You are blessed to have faith in your government’s good intentions, your bank’s probity, and your central bank’s determination to preserve the value of the pound. Others in this world have less faith in the social contract and more faith in cash. They are not without reason.
Dave, we don’t need to kill cash, we only need to add useful alternatives: http://sdj-pragmatist.blogspot.com/2010/04/innovation-doesnt-kill-anything.html.