Who is holding all those U.S. dollars?

If recent trends continue, in a few months there will be $1.2 trillion in Federal Reserve notes (otherwise known as dollar bills) in circulation. Who is holding all these?

One clue comes from looking at the denominations: 3/4 of the currency held by the public is in the form of hundred-dollar bills.



Share of U.S. currency outstanding by denomination. Source: Judson (2012).
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Personally I never use $100 bills. So the first thing I know is, whoever is holding most of that currency, it’s not people like me.

And $100 bills account for most of the growth in currency over the last two decades.



U.S. currency levels, 1988-2011. Source: Judson (2012).
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A recent paper by Federal Reserve economist Ruth Judson uses a variety of methods to infer that many of those $100 bills are being held outside the United States, where U.S. currency is sometimes regarded as a safer store of value than other local options. This is a long-standing trend that seems to have accelerated during the financial crisis. Judson estimates that about half of the growth since 1988 in currency held by the public has ended up outside the United States.



Estimated Cumulative Contributions of Domestic and Foreign Factors to U.S. Currency Increases, 1988-2011. Source: Judson (2012).
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That growth represents one important benefit that the U.S. has received from having a currency that is regarded as a safe and stable store of value. In effect, the growth in foreign-held dollars has meant that the U.S. government has been able to buy hundreds of billions of dollars worth of goods and services without ever needing to tax its own citizens or borrow in the form of interest-bearing Treasury securities.

Which is a great deal, as long as those foreign holders don’t change their minds and try to dump that currency back on us.

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39 thoughts on “Who is holding all those U.S. dollars?

  1. Bruce Carman

    The largest US supranational firms have invested trillions of dollars cumulatively abroad since the 1970s-80s. The bulk of the dollar-denominated reserves held by the PBoC is against US supranational firms’ deposits in Chinese banks (in non-convertible Yuan) and other non-convertible financial holdings from the massive FDI invested in China over the past 15-20 years.
    Moreover, the US State Dept., CIA, and military intelligence services have billions of dollars in walk-around cash as part of black box projects and foreign accounts to facilitate US imperial policy on the ground around the planet, including affiliated banks’ involvement in arms and drug trafficking, murder for hire, money laundering, bribing politicians and businessmen, etc.
    Therefore, of course most of the dollars in circulation over the past 20 years are held and circulated abroad.
    When the PBoC begins selling US securities en masse, it will be because US firms are repatriating dollars, for whatever reason.
    One of the primary reasons the US (banks) is (are) pressuring China to float is so that the US firms can freely repatriate and banks can speculate with hot money directly (rather than through the back door via Hong Kong and Singapore today) and use their power over financial markets to influence/co-opt the leadership in Beijing. So far, the Chinese have not taken the bait nor succumbed to the imperial bankster propaganda and pressure.

  2. Get Rid of the Fed

    “In effect, the growth in foreign-held dollars has meant that the U.S. government has been able to buy hundreds of billions of dollars worth of goods and services without ever needing to tax its own citizens or borrow in the form of interest-bearing Treasury securities.”

    Is that right?

    Aren’t the interest-bearing Treasury securities held at the fed?

    What happens if the currency holders decide to stop holding currency and want demand deposits?

  3. ivars

    This is cash only, and reason for sharper increase after 2008 is that more people realize its safer to stay away from banks at all (and earn negative real rates on digital USD savings) .
    The USA could sell paper currency at higher price then digital.
    I wonder why the USA would not create electronic cash ( bytes) that is issued by FED or USG and can be held outside banks in a flash, used in direct payments in shops, payments between entities bypassing bank, internet. It would be allocated digital currency but hopefully untraceable as cash.
    That would eliminate a lot of transaction costs plus bank collapse risk. That would also help to destroy the myth that banks need deposits to lend.

  4. Edward Lambert

    A few thoughts… The people who use low currencies below $20 are in lower income groups. Their real wages have stagnated for decades. They still buy things with $5 and $10 bills. And credit cards are much more common now among every income group. Also, inflation has been low since the 80’s.

  5. ScottB

    I read an article years ago that connected a lot of the cash through the Atlanta FED to drug trafficking in Latin America.

  6. Stevey Jones

    @techy – Bruce doesn not need references!
    My thoughts on holding cash:
    I am a “Millenial”, that is, of the 1980-2000 generation. We do not hold cash, generally. However, to @Edward Lambert’s point, those of us who do hold cash are generally in the lower income (hourly wage worker) brackets.
    The people who still carry cash are all of you boomer dinosaurs, and what’s left of the pre-WWII generations.

  7. kharris

    As I recall, Paul Volcker learned of the impact of foreign holdings of US cash when he hiked rates to reduce inflation. He miscalculated the size of the outstanding supply of cash, and one consequence was that he underestimated the amount of economic damage he had to inflict to get money supply down where he thought it needed to be. The move from cash to interest-bearing deposits was far larger than he’d expected.
    Presumably, the increase in cash holdings has at least something to do with the low return to deposits. In the US, holding deposits is still preferable to holding large amounts of cash above transaction needs, despite low rates. That calculation is probably quite different for some foreign holders, so they may be more sensitive to rates than US (and Canadian and German and Japanese…) residents.
    Bruce C,
    The PBoC doesn’t hold its reserves in $100 bills, so their reserves don’t help explain the rise in $100s, or any other form of cash, held abroad. Same for the BoJ and various wealth funds. While the CIA’s black bags full of cash are fun to dream about, they seem unlikely to account for much of the $500 bln rise in US currency held abroad over the past 2 decades. Government operations, clandestine and otherwise, may have added to cash holdings abroad, current holdings by US agencies would add little to that tally.

  8. Left Coast Bernard

    Prof. Hamilton,
    If we imagine a person in, say, Europe, who has 10 $100 bills in an envelope on his desk, what would he do to “dump that currency back on us?”
    Why would that be a problem for us?

  9. JDH

    Bruce Carman: Bank deposits and reserves are not the same thing as dollar bills.

    Get Rid of the Fed: When the Tbills are held by the Fed, the interest that the Treasury pays to the Fed on those Tbills comes right back to the Treasury. So it’s as if the Treasury borrowed for nothing, as long as the currency remains outstanding.

    Left Coast Bernard: The European could take the bills to a money changer to convert them to any other currency. Rather than accumulate an arbitrarily large stock of C-notes, the money changer in turn will also pass them on. If no one in Europe wants them, they end up back here.

  10. Rich

    I consider them a PITA, but if you want to see $100 bills in use, visit any Asian grocery store in central or northern NJ or Flushing NY. No self-respecting shopper would be seen using such classless bills as $20s or $50s.

  11. Matt

    I’d imagine that most $100s are held by hip hop artists, who are “Rolling Benjis” and “Making it rain”

  12. Bruce Carman

    @Kharris and JDH, I did not mean to imply foreign exchange reserves, deposits, and currency are synonymous, although I allow that one might have inferred that I meant that.
    Go to Mexico and parts of Latin America, Middle East, Africa, and Central Asia to black market economies and US banks’ foreign branches to find those $100 Fed Reserve notes being passed about.
    @Stevey and techy, the references to which you refer are everywhere; it’s common knowledge by now. Just google banks, money laundering, arms and drug trafficking, investigative reporting of the 1980s-2000s regarding BCCI, Riggs Bank, CIA, drugs, Contras, etc. HSBC has been laundering money for empire and the drug trade since the 19th century. The Caribbean banking centers and Channel Islands exist to avoid taxes, regulatory scrutiny, and facilitate “questionable” banking activities.
    @Get Rid of the Fed, the Fed does hold in custodial accounts about 60% of outstanding foreign central bank and int’l banks’ dollar-denominated foreign exchange holdings in the form of US Treasury securities. Were the PBoC to have to sell US securities on behalf of large US supranational firms’ Chinese deposits, they would do a book entry transaction with the Fed, likely including Treasury and other liquidity swaps, to settle domestic accounts to accommodate US withdrawals from China.
    The Fed, and fractional reserve banking in general, is among the least understood (misunderstood) topics, and purposefully so. The banksters don’t want the masses to know that our “money” is really debt-money and owned by the owners of the banks and the Fed via compounding interest claims to wages, profits, and gov’t receipts in perpetuity; that is, it’s a big digital book entry Ponzi scheme and ever at risk of loss of CONfidence by the masses. Were the general public to understand how the banking system actually works, including the Fed running political cover for the banksters’ license to steal with impunity, the system would implode, as it effectively did in ’08.
    The US banking system has vault cash equivalent to a 5 cents on the dollar of demand deposits and half a penny against total deposits. Reserve balances to total deposits are 18 cents on the dollar.
    If just 5% of depositors decided to act like Cypriots tomorrow and demand cash for their demand deposits, the banks would have to knock back the rushing crowds and lock the front doors. If just 5 out of 1,000 depositors decided to demand cash in exchange for their demand and time deposits, the banks would be out of cash within the space of a day.
    Note that total bank assets, including Fed securities the banks technically own, now amount to $16 trillion, which is 100% of GDP and 100% of equity market capitalization, the highest in US history, even exceeding the period before the 1929 Crash and Japan in 1989-90.
    Financial profits to total profits are ~45-50% (again, as in ’07-’08). Financial profits are 5% of GDP, 8% of profit GDP, and 4-5% of the sum of personal income, profits, and gov’t receipts, all record highs in US history.
    Banks now are the GDP and the stock market. Banks have claims on wages, profits, and gov’t receipts in perpetuity. If the stock market goes down, the banks and GDP go down. We are locked in a fatal bubbly embrace with the criminal bankster syndicate.
    Bank-induced bubbles are no longer evidence of “misallocation” requiring “normalizing”; rather, bubbles are required to prevent the system from collapsing on itself.
    Therefore, the banksters can rationalize all manner of free reserve printing, bailouts, bankster capo bonuses, austerity for the bottom 99%, war and plunder, and size of assets to GDP on the basis that if they go down, we all go down.
    The banksters now have rigged the Monopoly game so that they own all the assets on the board. Game over for the bottom 99%.

  13. Get Rid of the Fed

    JDH said: “Get Rid of the Fed: When the Tbills are held by the Fed, the interest that the Treasury pays to the Fed on those Tbills comes right back to the Treasury. So it’s as if the Treasury borrowed for nothing, as long as the currency remains outstanding.”

    OK. What happens when the currency is redeemed for demand deposits? Won’t some or even all of the Treasury bonds end up at the bank as assets for the bank?

  14. Get Rid of the Fed

    Bruce Carman said: “If just 5% of depositors decided to act like Cypriots tomorrow and demand cash for their demand deposits, the banks would have to knock back the rushing crowds and lock the front doors. If just 5 out of 1,000 depositors decided to demand cash in exchange for their demand and time deposits, the banks would be out of cash within the space of a day.”
    Let’s say the demand for cash (currency) happened slowly so enough currency could be printed. What does the scenario look like then? I agree that wealth/income inequality and debt (both private and gov’t) matter.

  15. Matthew Atkinson

    Considering that interest rates are low, if in fact these foreign holders start dumping the USD would we be able to raise interest rates fast enough to curb any excessive inflation? I think in reality we don’t really know how it would all play it out, but given we have low inflation and low interest rates shouldn’t we take advantage of the stability of our currency?

  16. KevinM

    Which is a great deal, as long as those foreign holders don’t change their minds and try to dump that currency back on us?
    Seems like that would be fixed by changes in the exchange rates favorable to us export. Maybe would result in real estate and agriculture booms.
    As an oil expert I suppose you were thinking about the price of oil imports. Yeah that would be a drag.

  17. don

    “That growth represents one important benefit that the U.S. has received from having a currency that is regarded as a safe and stable store of value. In effect, the growth in foreign-held dollars has meant that the U.S. government has been able to buy hundreds of billions of dollars worth of goods and services without ever needing to tax its own citizens or borrow in the form of interest-bearing Treasury securities.”
    Meanwhile, in a recession caused by deficient demand, that ‘benefit’ also means higher unemployment.

  18. ppcm

    Unable to recognise who is holding the 100 USD bills, one may attempt to locate geographically, where is the maximum likelihood of seeing those bills being held. Several homothetic curves may help.
    The 100 USD bills printing and the claims in USD may drive the way.
    M1 defined as
    « The currency component of M1, sometimes called “money stock currency,” is defined as currency in circulation outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions »
    In a life span of some 40 years this money component has jumped from around 40 Billions USD in 1975 to less than 1.3 trillions usd in 2012; Interestingly since 2000 the slope of the curve is exhibiting sharper inflexion points..
    M1
    http://research.stlouisfed.org/fred2/series/WCURRNS
    The IMF statistics in COFER provide for an expanded claims in USD from the emerging countries from 1995 till now.
    Some deductive thoughts may sustain more fine tuned searches.
    Cash holders are insensitive to the currencies volatility and interest rates bearing accounts they may live in dollar pegged economies. They are indifferent to the cumbersome exercise of money changers, they trade the volatility of the currency against anonymity. They generate positive externalities such as maintaining and expanding a currency market, no central bank sterilisation required.

  19. Johannes

    James : “…Personally I never use $100 bills. So the first thing I know is, whoever is holding most of that currency, it’s not people like me.”
    James, your sense of humor is refreshing- surprise, surprise !
    Well, my guess about who is holding these bills is : illegal business, drugs …

  20. Noni Mausa

    As a Canadian, I find it interesting that you can go to nearly any bank in Canada and buy US funds over the counter as easily as buying a loaf of bread. But drive 20 miles over the border into the states and try that. You will be as successful as if you tried to buy Canadian Tire money down there.
    So, is the foreign holding of US cash at least in part similar to the speaking of English — a worldwide default put in place by the American refusal to learn other languages? If you’re traveling stateside, you’d better be carrying greenbacks, or else pack a really BIG bag lunch.

  21. Ricardo

    Discussing this issue someone suggested that the FED was intentionally not printing bills greater than $100 so that large amounts of money are difficult to export. That has created an increase in the usage of $100 bills.
    Does anyone have any thoughts of stats to prove or disprove this assertion?

  22. Ricardo

    Edward Lambert,
    I believe that your assertion that denominations lower than $100 are used more by the lower income classes is suspect. Most of the people I know who transact in the money economy rather than the credit economy always carry more cash than upper income people who usually charge. I do not know if I have had a laborer at my home who did not have $100 bills in his wallet. Similarly, I don’t know many wealthy people who carry $100 bills for fear of robbery.

  23. Dan Kervick

    “In effect, the growth in foreign-held dollars has meant that the U.S. government has been able to buy hundreds of billions of dollars worth of goods and services without ever needing to tax its own citizens or borrow in the form of interest-bearing Treasury securities.”
    Could somebody explain this statement to me?

  24. Buzzcut

    I’ve been thinking that, in this day and age, with credit and debit cards, we shouldn’t just eliminate the penny, we should also eliminate anything larger than a $20 bill.
    Force people to go electronic, and wring as much out of the black market economy as possible.
    But maybe that would be counterproductive if all those $100’s are abroad?

  25. econimonium

    I can tell you from personal business experience in working in central/eastern Europe that I pay for most of my lodgings in private apartments, conference rooms, banquet facilities etc in 100 dollar bills and not the local currency. I can also tell you that these businesses and private individuals, keep a large stash of US100 within hands reach. Why? No one trusts banks. No one trusts the government to not devalue their money. This is also true in South America. So most of those 100’s are sitting stashed away somewhere, as a logical store of value. Btw, they all also like nice, crisp, unblemished bills. I think they hold better ;)

  26. ppcm

    A good Keynesian theory is never lost and money has always a multiplier effect when driven by velocity.
    Hereafter is only petty cash when compared to the total M1 evaporating in foreign landscapes.
    http://www.judicialwatch.org/blog/2012/07/billions-for-iraq-reconstruction-lost-to-fraud/
    As the end of the war in Iraq approaches its first anniversary, most Americans may not realize that billions of their taxpayer dollars are still being spent on Iraq “reconstruction” projects that are rife with waste, fraud and abuse.
    In fact, the government has lost track of a large portion of the money and a special watchdog assigned to keep track of the never-ending scandal, the Special Inspector General for Iraq Reconstruction (SIGIR), has published a series of scathing reports documenting the corruption over the years.
    The SIGIR’s latest audit, made public this month, reveals that at least $6 to $8 billion, earmarked for Iraq reconstruction, has been lost to fraud and waste. In all, Congress appropriated a whopping $51.4 billion to help the country recover from the war by, among other things, training local police, building schools, hospitals and transportation systems, but much of the money has literally vanished
    http://www.cnbc.com/id/43487056
    NY Fed Won’t Say How Much Money Went to Iraq.
    Not to worry, the general Carnot whom saved France against the European caolition knew that all brave men at home were stuffing thair pockets with stolen money.

  27. beowulf

    Vincent Bugliosi proposed years ago that the US attack the drug trade by limiting the repatriations of US drug profits overseas by:
    1. Requiring all wire transfers to go through banks (sorry Western Union)– and then keeping a weather eye on banks; &
    2. Print new currency bills that’s only legal tender inside US. After a short exchange period, present currency bills would only be legal tender outside US (and both would only be exchangeable at airports and other Customs stations; Tsy could also let foreign banks exchange out worn bills)
    In one fell swoop this would be a de facto seizure of billions in illicit profits (drug or otherwise) that American criminals would be unable to exchange out without raising a red flag (sorry Walt). Going forward this would strand future drug profits inside US unless it goes into banking system first (where the federales could then focus their attention).

  28. Charlie

    I think the Federal Reserve has sufficient bond reserves which it could sell to absorb those $100 bills should armies of $100-bearing invaders line up at our border and return the currency they have been hoarding and/or exchanging in their own locales.
    Perhaps we should set up $100-bill return programs, with incentives like free airfare for a week long visit to Las Vegas, Hawaii, or the grand canyon, or free delivery to the port of the buyer’s choice for US manufactured goods (opportunity for US weapons manufacturers for small caliper weaponry!)

  29. Bruce Carman

    @beowulf, but “the gov’t” is the owners of the banks that have profited for decades (centuries in the case of Britain) from money laundering, arms and drug trafficking, war and plunder, and tax avoidance. Why would they purposefully end such a system that has rewarded them so well?
    @Buzzcut, cashless economy/society is well on its way to becoming a reality; it’s not a matter of if but when it becomes virtually impossible to transact without being required to do so digitally.
    @economonium, thanks for confirming my point.
    http://www.moneyfactory.gov/uscurrency/annualproductionfigures.html
    @Ricardo, see above. Note the growth of $100 notes in recent years.

  30. BenAround

    Dan Kervick: “In effect, the growth in foreign-held dollars has meant that the U.S. government has been able to buy hundreds of billions of dollars worth of goods and services without ever needing to tax its own citizens or borrow in the form of interest-bearing Treasury securities.”
    Could somebody explain this statement to me?
    Here’s my attempt: In the balance of payments, US currency held by foreign residents represents foreign-owned assets in the US, similar to foreign-owned bank deposits or foreign holdings of Treasury securities. Rather than hold their US investment in interest-bearing deposits or securities, these residents hold US currency, presumably reducing the need for US securities to finance the deficit.
    This behavior also helps to finance the U.S. current-account deficit at low cost to the U.S.

  31. JDH

    Dan Kervick: At some point years ago, the Fed bought Treasury securities, worth say $200 B. The Fed paid for this by creating reserves, which were withdrawn by banks as currency and ended up staying as currency in foreign hands. Meanwhile, the Treasury is now paying interest on that $200 B to the Fed, which the Fed then returns to the Treasury. The net result is that the Treasury got $200 B in goods or services for which it never has to pay any interest and never has to pay anybody anything back, as long as foreigners continue to hold that $200 B as currency.

  32. Tom

    Interesting all the different ways the author comes up with to track and estimate dollars abroad. What I come away with is: nobody knows how many of those $100 notes are abroad and how money are in the US black economy, but with more and more US retail outfits not even accepting $100 bills anymore, the big growth of them obviously is not for ordinary circulation.
    Jim’s absolutely right about dollars being a kind of perpetual debt of the government. But actually, that’s true of all dollars, whether in paper or electronic reserve form, whether foreign held or privately held. It’s the very nature of fiat currency: a perpetual debt of the government, which it can repay but is never obliged to repay, and which serves as legal tender currency.
    Even if all the foreigners went and exchanged all their $100 notes for their domestic currencies, it wouldn’t change anything, except the value of the dollar would fall while they were doing it. The notes would end up first in the vaults of their domestic banks who would eventually, not finding any local demand for them and not wanting to pay to store them, ship them back to the US and be credited to their correspondent accounts at US banks. The US banks for the same reasons would turn them over to the Fed and be credited with electronic reserves. Reserves and excess reserves would go well up, currency in circulation would go well down, the government wouldn’t have to repay anything or pay interest on anything. Unless the Fed decided to sterilize the reserves. When the Fed sterilizes reserves, what is actually is, the federal government is repaying some of that perpetual debt. It does that by selling Fed assets, usually Treasurys.
    It’s not all quite that simple though as the Fed can issue dollars in other ways besides to the government in return for Treasurys. For example currently most home mortgage borrowers are actually receiving the money from the Fed, which buys mortgage bonds from GSEs, which buy mortgages from banks, which lend to households. So some of the dollars sent abroad was never spent by the government, it was lent by the Fed through a chain of intermediaries to households. Also the Fed can issue dollars through refinance loans and other kinds of loans to banks. The European national central banks do a lot of that, but the Fed hasn’t done much since the immediate aftermath of the crisis.

  33. benamery21

    Ricardo has a good point (words you will not often see from me). The middle class use 20’s (from ATM’s), and plastic–the unbanked use 100’s.
    Also, note that the pie chart is by value, not bill count. There are about as many 20’s “in circulation” as 100’s and they change hands more often.

  34. Robert E. Harris

    I sometimes carry some cash in 100 dollar bills when traveling in the US. They are sometimes a little difficult to use but not near so hard as 30 years ago, when no gas station would take a c-note and most would not take a 50. At the Tuesday afternoon bridge club several of the well-off women carry c-notes. I see them peeping out of their wallets as they pay their entry fees. I’d guess that often enough there is at least $1000 in that form in the room. People who play a lot of cards for money (not in this club, we play for Master Points!) use c-notes a lot.

  35. Michael Duffy

    About 30 years ago, I was an economist in the International Division of the Federal Reserve Board. At that time, I estimated that between 1/2 and 1/3 of transactional currency balances were held outside the U.S. based on simple transactions balance models of income elasticity and comparing U.S. to Canadian currency holdings (where unlike the U.S. reserve currency, there is no international currency demand, but similar to the U.S. interest rates, similar tax and regulatory schemes motivating some underground economy,etc). My guess is that with the growth of emerging economies, with local capital countrols and taxation avoidance, that the international holdings of U.S. currency has grown substantially and may be well over 2/3 of the stock of U.S. currency as is hinted by your denomination chart.

  36. me

    Aha! http://www.mercurynews.com/business/ci_22930687/bay-areas-average-homebuyers-shut-out-by-cash
    “… The fixer-upper, listed at $419,000, sold in a week for $629,500.
    “We ended with 69 offers, all but five for cash,” she said. “It’s mostly foreign investors. I’ve never seen this much cash, ever.” The home went to a couple buying the home for their daughter.
    “It’s horrible for buyers out there,” Haugh said. “Regular buyers, who have a good down payment, who want to get into a regular home. It’s a little scary. I really do feel it’s a bubble. Unlike the bubble before, that was driven by liar loans, this time it’s being driven by cash.”
    ….

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