The Rise Of The C-Note "And" The Cashless Economy?

Tyler Durden's picture

Even as Washington stares into a fiscal abyss of its own construction, there is one bright spot: the ongoing global popularity of the $100 bill. The U.S. Treasury/Federal Reserve launched their latest version of the venerable C-Note just this week, printing $350 billion worth over the last 12 months to meet anticipated robust worldwide demand. This came on the heels of the 2012FY, when the Treasury printed 3.0 billion such notes.

Given that $100 bills last about 15 years in circulation, ConvergEx's Nick Colas notes that these record amounts seem to indicate very strong worldwide demand for hard currency rather just replacing old stock. In the US, by contrast, the ‘Cashless economy’ is coming hard and fast.  Dollar bill production in 2013FY was just $1.8 billion, the lowest amount since 1980. The value of all currency printed, excluding $100 bills, was $27 billion – less than half the run rate of just a decade ago and the lowest since 1981.


Via ConvergEx's Nick Colas,

The ongoing news coverage about the U.S. debt limit and budget debates has crowded out some pretty juicy stories in the past week, such as the mysterious $27 billion cash hoard sitting in a Moscow airport warehouse.  According to the Russian tabloid press (so take this all with a grain of salt), it arrived six years ago in 200 pallets of plastic-wrapped cash, with no forwarding address.  Since then Russian authorities have kept the money under armed guard, waiting for someone to claim it.  Some say it belongs to a fallen Middle East dictator.  Others suspect it is Iranian oil money. 

The strangest bit of the story, true or not, is that that the cash is all in 100 euro notes.  It is theoretically possible for such a trove to exist, for the European Central Bank printed some 129 billion euros worth of these bills from 2002 to 2008.  If 16% of them are sitting in Moscow, that would be a large chunk of the outstanding, to be sure.  How one person or institution could amass so much of the relatively new currency without drawing attention is the real question.

That anecdote neatly explains why the U.S. $100 note is still the world’s king of physical currency, rather than the euro.  Over the same seven-year period the U.S. Treasury printed $589 billion of C-notes, so anyone looking to store $27 billion in cash would need just 4.5% of the issuance to construct their nest egg.  And, of course, the U.S. government was printing $100 bills long before the euro was even a twinkle in Brussels’ eye, so the supply is actually much larger than that. 

The fact that the U.S. Treasury just redesigned the $100 bill, launching the latest iteration today, should tell you that physical notes are still an important part of what makes the U.S. dollar a global “Reserve” currency.  The new notes have upgraded anti-counterfeiting measures such as three-dimensional ribbon imbedded in the bill and a color-changing bell in an inkwell.  Everyone from Hezbollah to North Korea has famously tried to counterfeit the U.S. $100 bill over the years, with varying levels of success.  The latest enhancements are merely the latest move in a long game of cat and mouse between forgers and the U.S. government.

What is more intriguing is the explosive increase in demand for $100 bills since the Financial Crisis.  Prior to 2007, the U.S. Treasury typically printed about 630 million C-notes (the average from 2001 – 2006).  From 2007 to the recent end of the 2013 government fiscal year, that average is 1,894 million, or three times the old run rate.  A few points here:

Most $100 notes go immediately overseas and stay there for their useful lives.


The Treasury estimates that a typical $100 bill lasts about 15 years, versus just 5 years or less for a $1 bill.  This is due to reduced handling.


The cost to produce a new $100 bill is about 13 cents, up modestly from the old note’s cost of 8 cents.  


The production of $100 bills is therefore profitable enough to have a positive and noticeable impact on U.S. fiscal health.  Assuming that half of the average 1.9 billion note average issuance since 2007 was new demand rather than replacing used currency, the U.S. has netted $190 billion/year since the Financial Crisis from the $100 bill program.  


Even better, since the demand for C-Notes is non-U.S., these inflows are largely incremental to the domestic economy.  You think Apple or Google have a good business model?  The Treasury/Federal Reserve have them trumped.

Who uses the $100, and to what purpose?  That’s where things get a little difficult.  It’s not like this is an efficient way to move money around. One million dollars just about fits in a standard Halliburton 5” aluminum briefcase, but it weighs about 22 pounds.  The $100 bill is widely accepted, to be sure, but if you move around with more than a few million dollars you’d better have a bodyguard or five. 

A piece of the incremental demand over the last decade is obviously conflict-related.   When I travelled in Afghanistan earlier this year it was clear that the U.S. dollar was the preferred currency, and the whole place seems to run on wads of $100 bills.  As countries in the region – Syria, Libya, Lebanon, and Egypt, for example – go through political and economic upheaval, their demand for physical currency likely grows.  The dollar still has an edge over the euro here, if only because of its longer history.
Then there are the more obvious sources of demand: criminal enterprise and tax evasion.  Google the term “Drug bust” and you won’t likely see bitcoin thumb drives or euros stacked up next to the illegal substances.  It will be stacks of $100 bills.  And our Russian airport stash notwithstanding, the dollar certainly has an edge in money laundering and “Wealth preservation” strategies.  Add to this the low rates of inflation in the U.S relative to many other countries, and you have a convenient (if bulky) store of value.

Back inside the U.S., however, paper currency is quickly sliding into the same history as electric typewriters and land line telephones.  We’ve got a lot of data on this in chart form after this note, but here are the highlights:

For the just-ended 2013 Fiscal Year, the Bureau of Engraving and Printing (part of the Treasury), produced just 1.8 billion dollar bills.  That’s the lowest production count on record since 1980 and a fraction of the 5 billion notes printed in 2000 and 2001 during the Y2K scare.  Even back during 2007 and 2008, the BEP was pumping out +4 billion bills a year.


The second most popular note – the $20 – is also way down in terms of production.  In 2013FY, the BEP produced 528 million such bills, down from +3 billion in 2005 and +4 billion in 1999.


The total value of non-$100 bill currencies printed in 2013FY was just $27.4 billion, the lowest amount since 1981.  For comparison, consider that in 2007 the BEP printed $72 billion in non-$100 currencies and even last year this number was $56 billion.

In summary, technology – debit cards, online bill paying, gift cards, etc – is quickly making physical currency a niche product rather than a mainstay of the domestic American economy.  The most profitable ‘Niche’ from an issuer’s perspective is the high-denomination $100 bill, and this fits neatly with the needs of many people who want a reliable and physically compact currency – especially offshore.  For everyday transactions, the “Cashless economy” is clearly on its way.

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tahoebumsmith's picture

Just bring on the trillion dollar coin that the treasury can deposit yet please make me use my debit card for every purchase bitchez. It should be pretty obvious by now what is really going on in the "real" monetary system...Just google the word Zionist if you haven't a clue. All Americans should be Yellen till the cows come home.

The Shootist's picture

Thankfully, N. Korea can also print as many Benjamins as needed for Mr. Un.

Manthong's picture

If Un young just played his cards right, we would just ship C-130's full of them to him..

like we did to Saddam.

Pladizow's picture

In terms of space and weight, wouldn't the 500 euro note be more efficient for elicit activities?

Titus's picture

It would be, except they are harder to use in most places. You can break 100 dollars anywhere, 500 euro notes are a different story.

BearOfNH's picture

Sounds to me like a fine opportunity for Treasury to reintroduce the $500 bill. Benjamin would be replaced by William (McKinley, 25th president). After all, if C-notes are so beneficial, D-notes would be even more so.

Seasmoke's picture

Just add 3 zeros at the end of my available balance and I'm good for 50 years.

mvsjcl's picture

Cashless is the IRS's wet dream.

outofideas's picture

I was talking with my buddy today about this an we both agreed that the $20 is the new dollar bill. It is the default money pooped out by the ATM and a lot of daily purchases end up close to a number divisible by 20. The single, five, and ten are change not money anymore. Thus it isn't really surprising that we are seeing a drop in the number of singles and fives and tens printed. I wish there was a graph for the $20.


duo's picture

pretty soon the US will be like Italy before the Euro. 10,000 lira for a bottle of wine (everyday stuff).

The Shootist's picture

I saw two people talking at the Dunkin Donuts register about paying with some iPhone app, and how people will be laughing at credit cards in 5 years.

US peasants are lowly indeed.

Beam Me Up Scotty's picture

"these record amounts seem to indicate very strong worldwide demand for hard currency rather just replacing old stock"

Hard currency, LOL.  Our currency is about as hard as a 90 year olds dick is.  The days of the "hard currency" US dollar are LONG GONE people.

Al Huxley's picture

Yeah, I'm having a hard time deciding on how to allocate my 'hard currency' portfolio - how much do I want in C-Notes and how much do I keep in assignats.  Hard currency, LOL... I can't fucking believe what the world's devolved into...

fonzannoon's picture

Cashless society is the fed's wet dream. Combine that with them owning and eliminating the bond market and they pretty much control the monetary spigot. 

kito's picture

The country is going cashless because the people are cash-less. When you have over 50 million receiving ebt cards and countless other millions receiving benefits electronically like Medicaid, section 8, etc, of course there is a drop in use of cash. This will all end soon enough.

akak's picture

Cogent observation Kito.

Overfed's picture

I just wish I could buy my $100 bills at wholesale.

Jumbotron's picture

You can just like the Fed.

Ctrl - P

Beam Me Up Scotty's picture

Try Ctrl-P.  Go directly to jail, do not pass GO, do NOT collect $200.

Jumbotron's picture

Sorry....already printed up $200 and collected it from the hopper.  LOL

Jumbotron's picture

I'll be damned.    Never have I've seen charts like this.  Couple this with the move to touchless based wireless transactions with smart devices and biometrics on credit cards and other order as they say....."To Reduce Friction in the Transaction"........

Wow.....this is real clarity on the big picture right here.   Bravo Tyler !   Well done.

SmallerGovNow2's picture

What i don't understand is the post says paper money is printed every year.  The latest series note i can find in circulation is 2009.  Do they just keep using the same series date even when printing in say 2012?

starfcker's picture

it has to do with treasury secretaries and when they start. tim geithner 2009. now the new guy jack lew, we will get series 2013

A Lunatic's picture

The best use of a hundred dollar bill is to turn it into four ounces of silver...........

mharry's picture

More and more my customers hand me cash and say they don't want a receipt, suck on that I.R.S.

fonzannoon's picture

They are getting rid of their cash. The I.R.S is winning

zhandax's picture

More and more my customers hand me cash and say they don't want a receipt, suck on that I.R.S.

Unless you put a customer ID on your receipt, they need say nothing.

Muppet Pimp's picture

At least Ft. Worth is taking care of printing money now by itself.  Feel a lot better knowing them folks in TX are handling that. One less task to leave to DC:

Kreditanstalt's picture

The real COUNTERFEITERS are in government...they just don't want anyone else cutting in on their operation...

(How does the constitution define a "dollar"?)

The Shootist's picture

Ooh, I know! A greenback note with tyrannical presidents on it. Did I get it right?

Peachfuzz's picture

nah, Franklin was never a prez.

on a separate note: New fed chair, not enough inflation for the fed @ 85 billion per month in new money creation, 70 percent of all dollars held outside the US, planned dollar destruction event on the horizon. I can't think of a single thing that would kick up money velocity better than Red Money, how 'bout ya'll?

zhandax's picture

(How does the constitution define a "dollar"?)

The Constitution doesn't.  The Currency Act of 1792, on the other hand specifies a dollar as "371-1/4 grains of fine silver".  It also specifies death by hanging as the penalty for debasing the US Dollar.  If the justice department is ever restored to creditability, we will need a shitpile of rope.

booboo's picture

Cashless? bullshit, maybe for the serfs but what the fuck is congree going to stuff in their office freezers? Speaking of congress and freezers, what is the difference between Senator Lindsey Graham and a freezer?

A freezer don't fart when you pull the meat out.

22winmag's picture

Ummm... no, the 500 Euro has overtaken the 100 FRN as the heavyweight champ of drug dealing.


Still, anything can become cash when there is enough to circulate, bars of soap, rifle cartidges, bottles of rum...

Son of Loki's picture

Cash is so old's all [never to pay back] Credit these days.

animalspirit's picture

Wouldn't switching to a new bill and letting counterfeits of the old bill run unchecked be a way of devaluing currency for those outside the U.S. who have many of them while protecting the value for those within the states (where few counterfeits of the old $100s  will circulate)?

Rockatanski's picture

should i trade my old benjamin's for the fancy new ones?

sosoome's picture

Yeah, just wait until everyone finds out how easy it is for those digital dollars to evaporate when we go Cyprus.

Cash will be king, and you won't be able to get any.

buttmint's picture

...anyone that travels overseas knows that $50 and $100 USD bills (crisp, not worn) are the preferred medium of exchange into local whatever.

You get hosed by a lousy exchange rate if you try to exchange $20's, 10's etc. I've been wondering that if the USA goes to a two-tiered dollar system, which printing will be used internationally and which USD will be used domestically? Jime Willie et al have discussed this reality of a two-tiered USD to screw the home folks and reduce outstanding obligations like pensions, social security, ad nauseum. This two-tiered system would break out into an insta-black market.

Dan The Man's picture

If the US mandates the end of cash, will this help recapitalize the banks?  


It has to go somewhere.