Decline in Consumer Use of Cash Is Offset by Criminal Usage of Benjamins

We have all seen the decline in consumer usage of physical currency. The trend has been going on for some years, with folks finding it more convenient to whip out a credit card or just wave their phone in order to make a purchase. The drop in cash use was dramatically accelerated during COVID when we avoided physical contact with anyone and anything outside our homes, preferring contactless payments or just ordering stuff on line.

The Federal Reserve has since 2016 run an annual survey of households to track trends in payments. This data set shows the big drop in cash use in 2020, with a corresponding increase in payments by credit cards and mobile apps:

Share of payments use for all payments, from Federal Reserve’s “Diary of Consumer Choice” , 2022 edition.

Similar trends hold for the U.K.; the main alternative to cash there seems to be debit cards:

Source: BBC

Cash use continues to decline but the rate of decline seems to be slowing. Among other things, some twenty-somethings have been inspired by social media discussions to practice budgeting by using physical envelopes of physical cash for specified categories of spending.

Our discussion so far has mainly dealt with retail purchases by consumers. However, there is another dimension of cash use. As pointed out by Andy Serwer, there has been a steady surge in international demand for the largest denomination of U.S. currency, which is the $100 bill. This chart from the Fed shows that the dollar value of U.S. dollars in circulation has roughly doubled in the past decade:

Nearly all this rise is due to the insatiable demand for $100 bills, and the vast majority of that new demand is from overseas. Some of those Benjamins may be innocently sitting in foreign central bank vaults, but it is understood that many (perhaps most) of them are used by arms and drug dealers and other criminals.  Cash is used way more than cryptocurrencies for criminal activity. According to Serwer:

A million dollars in $100 bills, in case you’re wondering, weighs about 22 pounds, they say. A double stack would be about 21.5 inches high by 12.28 inches by 2.61 inches. You could carry it in a big briefcase, or as I suggested, a satchel.

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