Despite new technologies for electronic payments, cash has never been more popular. According to the Federal Reserve Bank of Richmond, over the last decade, dollars in circulation as a share of GDP have nearly doubled from 5 percent to 9 percent. Today there is 1.6 trillion dollars in cash in circulation, or roughly 4,800 dollars for every person in the United States.
In addition to being used for exchange, cash also acts as a store of value. Tim Sablik, staff writer at the Richmond Fed and author of the article Is Cash Still King? believes that “high-denomination notes are best suited for this purpose, so tracking their circulation can provide a sense of how important this aspect of cash is for explaining currency demand. In the United States, large-denomination notes seem to be driving the growth in cash. The $100 bill accounts for most of the total value of currency in circulation.”
Demand for $100 bills has significantly outpaced other denominations in terms of pure volume as well, averaging an annual growth rate in notes of nearly 8 percent since 1995 compared with 3 percent to 4 percent for most other notes. In fact, in 2017, the $100 bill surpassed the $1 bill as the most widely circulated U.S. note.
While some of this demand may come from domestic savers, researchers believe a significant share of $100 bills are traveling overseas. Ruth Judson, an economist at the Fed Board of Governors, mentions: “We think that the significance of foreign demand is unique to the dollar. Other currencies are also used outside their home countries, but as far as we can tell, the dollar has the largest share of notes held outside the country.” She has stimated that as much as 70 percent of U.S. dollars are held abroad. Additionally, Judson estimated that as much as 60 percent of all Benjamins are held by foreigners.
“Overseas demand for U.S. dollars is likely driven by its status as a safe asset,” says Judson. “Cash demand, especially from other countries, increases in times of political and financial crisis.” And U.S. Treasuries as well as dollars remain safe-haven assets in times of global distress, like the financial crisis of 2007-2008. For example, Judson found that while international demand for dollars began to decline in 2002 after the introduction of the euro, that trend reversed after the 2007-2008 crisis.
As Sablik states, crises prompt domestic households to seek the safety of currency as well, and with low inflation around the world, making holding cash low cost affair, more people, on and offshore, are turning to large-denomination banknotes to keep some of their wealth.