Although we live in an era obsessed with innovations such as contactless transactions, some tangible goods and relationships matter deeply, says ...
Given that we are supposed to be living in a digital era, with credit cards, bitcoin and so on, this strikes me as odd; doubly so, perhaps, since some, such as Tesla chief Elon Musk, predict that cash will soon disappear.
“It’s the opposite of what an economics textbook might say,” Slok points out, noting that it is “very peculiar” to have US$1.25 trillion of financial “dry powder” sitting in “dead” assets such as cash, not earning any return. Fed policy offers no easy explanation either: although it has pumped liquidity into the system, this did not necessarily need to go into US$100 bills.This leaves us looking for other reasons why consumers might want these bills. One could be crime.
To make the current pattern doubly suspicious, researchers at the Chicago Fed estimate that about four-fifths of large-denomination bills are now sitting outside the US, up from a third in 1980. Geopolitical turmoil is almost certainly another factor. As Ruth Judson, a Fed economist, pointed out in a paper a couple of years ago: “Once a country or region begins using dollars, subsequent crises result in additional inflows.”
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