America has two currencies

In America, there is the cash that is used for legal transactions, and that’s falling, and there is the cash that is used for illegal transactions, which is rising. When I’m involved in a discussion about the transition to a cashless society, it is not unusual to hear someone say “yeah, cashless society – just like we were going to have a paperless office” as if that was a point scored. What the protagonist may not realise is that that argument actually shows us precisely where we are heading. The use of office paper in the US, in fact, peaked way back in 2000 and its use is already 40% below that peak. If you look at that sort of graph, we’re on a slope (albeit asymptotic in generational timescales) towards a paperless office. Similarly, if you look at the figures, the US is on a slope toward a cashless society in the same way. Ah, you might say. You must have taken the brown acid at Money 2020 Dave, because the latest US figures clearly show that the total value of US currency in circulation has gone up again this year. At which point I will remind you about my blog post on the “cash gap” and note how the latest statistics back up my analysis.

The total value of non-$100 bill currencies printed in 2013FY was just $27.4bn, the lowest amount since 1981. For comparison, consider that in 2007 the BEP printed $72bn in non-$100 currencies and even last year this number was $56bn. [From Towards cashlessness, a brief update | FT Alphaville]

In essence, America has two currencies in circulation. There is the cash used to support the economy, effect transactions and facilitate commerce. This is in steady decline. Lowest since 1981. Peak cash has passed. There were four billion $20s printed in 1999, half a billion last year. The circulation of small bills lags GDP just as one would expect as non-cash substitutes grow at POS. Then there is the other cash, the cash used for tax-evasion, drug-dealing, money-laundering and crime of all sorts. This is the $100 and to an extent the $50. A lot of stores in America won’t even take these bills (and I imagine a lot more store personnel will be instructed not to take them now that the new Benjamins are on the streets – they look completely fake to me and I certainly wouldn’t accept one). How much longer is this crazy parallel currency nonsense going to go on? I’ve just got back from Vegas and I didn’t use cash once, except when we went downtown to play Blackjack and I got some cash from an ATM, which as it turns out was unnecessary because I could have used my debit card inside the casino. The taxis all took cards (in fact they took contactless – so therefore they took phones, and in my case watches, as well) as did the restaurants hotels and coffee shops. Having said that, I would not for one moment want you to think that the payment infrastructure was functioning as it should in a developed economy. As I pointed out on Twitter at the time, I had to show photo ID in order to buy a cup of coffee.

@dgwbirch wasn’t making up coffee shop example. Just had to show photo id on $3.75 purchase. Waste of time/money. #payconnect Jim Bruene (@netbanker) March 11, 2014

Somewhat hilariously, as I demonstrated to a colleague more than once (you get asked for photo ID whenever you buy something with card in Las Vegas) the store clerks were perfectly happy with the photo ID that I showed them, which was an expired building pass from an office in New York that has my name on it, and my photo, and nothing else. What they thought it was I have no idea, especially since I signed the transaction as Alvaro Negredo. Security theatre, nothing more. Anyway, back to the competition. Yes, the cashless society is as likely as the paperless office (ie, very).

technology… is quickly making physical currency a niche product rather than a mainstay of the domestic American economy. [From Towards cashlessness, a brief update | FT Alphaville]

I do not understand how Americans put up with this ridiculous state of affairs. You must get rid of the $50 and $100 bills immediately. The seigniorage that the US earns on the suitcases full of cash underneath oligarchs’ ottomans and drug-dealers’ divans is just not worth the havoc inflicted on polite society by these wretched instruments. Why the inertia? As Jack Weatherford, the author of “The History of Money” said back in 1998, “Already cash has become the domain of poor people and poor nations”. And, he might have added, congressmen, which is perhaps why there is no pressure for change from the legislature?