What’s All This About the Benjamins?

Last month, Larry Summers—the Harvard economics professor and former treasury secretary—called for an end to printing high-denomination bills, arguing that $100 and €500 notes help facilitate criminal activity. Summers, developing the findings of a Harvard colleague, suggested that the move would not disrupt the world economy, in part because “technology is obviating whatever need there may have been for high denomination notes,” and would be in “the interests of ordinary citizens.”

Summers’ proposal was quickly seconded by The New York Times, which agreed that high denominations “are often used by drug cartels, corrupt politicians, terrorists and tax cheats to evade law enforcement,” and that with “so many ways to pay for things . . . eliminating big bills should create few problems.”

But their proposal to abandon the Benjamin has two major problems. The first is that eliminating the bill would inflict little damage on criminals. Yes, they would have to find another way to transfer value to their counterparties, gravitating to less fungible, portable, or anonymous alternatives like $20 bills or gold bullion. Less convenient forms of tender, to be sure, but obviously not a terribly big bite out of crime.

If these criminals operated in a vacuum, perhaps the small inefficiency imposed on them would make it worthwhile to forgo Franklins. But the second problem is that, contrary to Summers and the Times, ending the $100 bill would have a ripple effect on average American consumers. This damage might be hard to recognize at first, if only because few people carry $100 bills in their wallet, and because we tend to ignore the differences between cash transactions and electronic ones, apart from the convenience that a debit card offers.

But there’s a lot to be worried about in a society that no longer values cash, and that’s because criminals aren’t the only people whose interests oppose those of consumers. Look no further than the growth of negative interest rates. Not long ago, it would have been inconceivable for customers to pay banks to hold their money. Yet as of last week, the bonds of 13 countries (totaling $7 trillion) earn their owners a negative interest rate.

Obviously, banks—both private and central—prefer negative yields because they reverse the traditional model and earn money for the institution rather than the consumer. These rates also make sense for large entities that are unable to take actual cash for the trillions of dollars they are investing. But for a consumer with only a few thousand dollars in savings, the prospect of cold hard cash is much more attractive than a money-losing savings account.

If the $100 bill disappears, however, customers will be deterred from using cash for a similar reason as criminals: it’s less convenient to hoard smaller bills. With cash an impediment to the viability of negative yields, abolishing large bills would help central banks profit from, and punish, savers. It’s no wonder that in Japan, the sales of safes have doubled since the country’s central bank instituted negative interest rates.

Both Summers and the Times suggest that high-denomination bills are the enemy of Everyman by calling them “big money” “big currency,” respectively, to conjure images of nefarious institutions as Big Tobacco, Big Oil, and Big Business. This implied comparison is absurd: if anything, it’s their proposal that would threaten average Americans and empower Big Banks and Big Business.

It’s worth repeating: cash encumbers central banks. Last April, Citigroup’s Global Chief Economist made three suggestions to eliminate what he called an “undesirable constraint.” Those suggestions were abolishing paper money, taxing paper money, and severing the link between paper money and central bank reserves.

The Times acknowledges that “big bills make it easier for people to keep their savings in cash, especially in countries with negative interest rates.” It simply dismisses that fact as a “relatively minor” burden. But this loss of economic freedom—and earned interest through savings—is not minor, and certainly not worth the insignificant damage it would inflict on criminal enterprises.

Joe Colangelo is the Executive Director of Consumers’ Research.

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