Dr. Kenneth Rogoff, PhD from MIT, says that the Federal Reserve should reduce the amount of cash in the economy to fight crime:
It’s time to reduce the amount of physical cash floating around the globe to help combat tax evasion and other illicit activities, Harvard professor and renowned economist Ken Rogoff told CNBC on Tuesday.
“I’d eventually phase out the $100 note. I’d phase out the $50. And over 10 or 20 years, I’m phasing out the $20s,” he argued, while explaining the thesis of his new book “The Curse of Cash” in a “Squawk Box” interview.
“Cash is very good way to port, horde, hide for crime [and] tax evasion. The evidence, I think, is overwhelming that that is a lot of the use,” he added. “There are things like illegal immigration … that’s cash-driven. If you couldn’t pay in cash, it wouldn’t drive all the illegal immigration.”
FedGov and the banking industry have been pushing for this for decades. This is somewhat puzzling, as the majority of the money supply in the U.S. exists only as numbers in a computer. The total amount of coins and currency in circulation represents 42.15% of M1, and only 10.72% of M2. Of course, this is still too much for Dr. Rogoff, who doesn’t seem to know how to use the internet to do some basic economic research:
“If you look at cash outstanding in the world, there’s tons of it. It’s mostly in large denomination notes, $100 bills. There are more than 4,000 for every man, woman and child in the U.S. We print more constantly,” Rogoff said. He estimates nearly 80 percent of all cash in circulation is in $100 bills.
80%, you say? Well, I know that I use $100 bills for 80% of my transactions. (/sarcasm)
Reality presents a different picture. Once again, he doesn’t seem to know how to use the internet to look up the information. Depending upon which graph you look at, the bill that makes up the largest percentage of cash in circulation is either the $20 bill or the $1 bill. The 80% for the $100 bill comes from the first graph, which represents the value of all currency in circulation.
What Dr. Rogoff doesn’t seem to realize is that the $100 bill has a value that is a multiple of the value of the other bills in circulation (twice the value of the $50 bill, five times the value of the $20 bill, ten times the value of the $10 bill, twenty times the value of the $5 bill, and one hundred times the value of the $1 bill). It stands to reason that the most valuable bill will have the highest value compared to the other bills in circulation.
There are other ways to determine which bill is used the most. The simplest way is to look at the volume (number) of each bill in circulation:
Now you can see that there are about as many $1 bills in circulation as $100 bills. Additionally, there are almost as many $20 bills in circulation as $1 and $100 bills.
We can also look at the payments and receipts of currency in circulation. These amounts represent the amount of currency that is actually exchanged in the U.S. economy.
These last two graphs prove that Dr. Rogoff is either ignorant or lying (possibly both). Both the $20 bill and the $1 bill are used more than the $100 bill. And the $5 bill is used as often as the $100 bill. There’s no way in hell that 80% of all currency in circulation is $100 bills.