Kenneth Rogoff has proposed perhaps the most radical proposal of abolishing the $100 bill. On another note, however, he regards this as quite a natural argument within the context of controversy. He claims that it would reduce the cash used in illegal activities and allow monetary policy to work more efficiently. Admittedly, cash is no longer as highly regarded as a vehicle for conducting transactions in everyday lives as many would think so. Studies done by the Federal Reserve estimated that close to 60% of U.S. transactions are done through credit and debit card transactions, while cash is the third most widely used form of payment. But that does not mean to say that paper bills have lost their symbolic or practical value in the economy.
Kenneth Rogoff’s View
Besides being an economist, Kenneth Rogoff, he is a chess Grandmaster, and after thoroughly having analyzed the matter, he makes the startling observation that though over half of U.S. $100 bills circulate outside the United States, the average amount held by each American is sufficingly 55 of them in their pockets, according to the U.S. Treasury. His main argument consists of the relative importance of underground cash as evading the grasp of policies, which in turn allows large quantities of these notes to be circulated in society on the market.
Therein for couches, he is talking central banks controlling their overdrafts on economies and thereby against cash enumerating the currency racket cash target for perpetrators. Some counterfeiters—from North Korea, for example—deal in high-quality counterfeits known as “superdollars” that circulate with remarkably convincing detail.
Studies on the Denomination Effect
There is also an interesting phenomenon called the “denomination effect,” whereby, for some psychological reason, people will hesitate to spend larger denominations on something where the same item is available in a smaller denomination. I guess many could relate to that. At some point, this maybe makes you think of the big bill as being “too valuable,” or at least you would like to think so.
Many experiments have been conducted by Helen Colby of the Kelley School of Business at Indiana University into this phenomenon. One of her studies indicated that college students were very unlikely to make a purchase when presented with just one $100 bill than were those who were confronted with five $20 bills. Colby explained that using a larger denomination creates more feeling of “loss” than it does when a credit card is used. “Because a credit card, when you swipe it, you don’t really feel that you are spending, because you get it back after the purchase,” said Colby. “But when you give away a larger bill, it actually feels like you’re destroying it.”
Quite interestingly, these $100 bills are in circulation for over 10 years while the $1 and $5 notes are only in circulation for less than 2 years, as stated by the Federal Reserve. That raises yet another interesting point: Rather than burning the $100 bill, why don’t we consider introducing yet a new note, say the $500 bill? While such a suggestion may sound very retrograde, it might have its place in an economy that demands more and more larger cash transactions.
