When we last looked at the amount of $100 bills printed by the Treasury's Bureau of Engraving and Printing, we were a little concerned because it appeared that the Fed's infatuation with growing bank reserves had finally spilled over into the physical money printing arena, after a record 4.4 billion $100 bills were printed just a year after the Treasury had, at the Fed's request, printed another 3 billion of the new banknotes. In retrospect this wasn't a case of the Fed wishing to unleash Weimar upon the US - at least not yet - but merely part of the ongoing process of replacing old $100 bills with the new "plastic" ones. This amounted to over $750 billion in new $100 bills alone being unleashed on the market, well over half of the entire amount of US paper currency in circulation.
Whatever the reason for the surge, it now appears that the Fed's wanton money printing hit a brick wall in 2014, and together with the transitory end of QE earlier today, the Treasury's literal printing of money also tumbled, with just 650 million of the brand new banknotes issued, an 85% plunge from the year before. In fact, the number of $100 bills printed in 2014 was the lowest amount of this higher denomination unleashed into broad circulation since 2004!
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Curiously, it is also over 70% less than what the 2.4 billion $100 notes the Fed has originally ordered from the Treasury.
[5]
Alas, those seeing in this data a reason for the plunge in money velocity will have to look elsewhere (well, maybe). Here, according to the Fed, [6] is the reason for the drop in the highest denomination US currency:
On July 22, 2014, the Board approved a revision to its FY 2014 order. The revised order reflects a reduction in the order for $2 and $100 notes and includes a total of 6.0 billion Federal Reserve notes valued at $121.7 billion. The reduction in the order for $2 notes allows the BEP to fix a minor production problem and the reduction in the order for $100 notes aligns BEP production with demand. Our issuance plan for the new-design $100 note was based on an aggressive replacement approach so that we ordered more $100 notes in FY 2014 than we anticipated we would need to ensure sufficient inventories following issuance. This reduction, therefore, does not indicate that demand for $100 notes has declined, but reflects the surplus of inventory that Reserve Banks are working through following issuance of the new-design $100 note on October 8, 2013.
Sounds like yet another velocity of money problem to us, and this one is quite literal. Oddly enough, the Fed has no problem accomodating "surplus inventory" when there is clearly too much supply of paper currency and yet when it comes to electronic currency, i.e., Fed reserves it will fill banks to the gill with reserves for which there is also no demand, and so banks have no choice but to buy stocks with the electronic money presented them by the Fed.
Philosophical issues aside, while the $100 bill may have hid a tranistory stumbling block in its clearance rollout, be it due to excess supply or insufficient demand, the fate of the paper that carries the face of the first American president is becoming clearer with every passing year: at this rate, the US may still have pennies in circulation but it sure won't have dollar bills for much longer.
[7]
2014 being a bad year for paper currency aside, here is the full recent history of money print orders by the Fed:
And while everyone is an expert these days on the Fed's creation of electronic money, here is the full history of US paper money over the past 20 years:
Currency in Circulation: Value
Currency in Circulation: Volume
Calendar-Year Print Order: Volume and Value
Federal Reserve Expenses for Cash Operations
Cost of New Currency
Payments of Currency to Circulation: Value
Payments of Currency to Circulation: Volume
Receipts of Currency from Circulation: Value
Source" Federal Reserve, US Bureau of Engraving and Printing
