Why the $250 bill would be good … For criminals!

0:01NPR.

0:06Carmen Reinicke:This is The Indicator from Planet Money. I'm Waylon Wong. And I'm Patti Hirsch. A plan to create a new$250 note adorned with the visage of President Donald Trump has attracted a lot of criticism and opposition. And it's complicated. The Federal Reserve, the Treasury, and the Secret Service would need to agree for it to happen. And then there's the idea that the note would depict the president. This would contravene a law that prohibits the likeness of any living person from appearing on U.S. currency, bonds or securities. So Congress would need to approve too. But there's one area of opposition that hasn't received much attention.

0:41Carmen Reinicke:The idea that a$250 note would be a gift to criminals. Drug dealers, armed smugglers, people traffickers, money launderers, they all love to use large denomination notes. On today's show, we'll look at how they use them and how minting a$250 note could really, really help one type of criminal in particular. Spoiler alert, tax dodgers. Damn tax dodgers.

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3:03Carmen Reinicke:To be clear, the idea of creating a$250 note is not President Trump's, at least not officially. He has been notably silent on the matter. Yeah, the public face of the plan is Representative Joe Wilson of South Carolina. He's given three reasons. First, to celebrate 250 years of American independence. Second, to lionize Mr. Trump. Yeah, didn't he say something like, the most valuable bill for the most valuable president? Yes, he did. And the third reason he gave for the new note is to compensate for the erosion of value of the$100 bill, the largest bill that we print in America today. And he's not wrong about that last part.

3:39Carmen Reinicke:Ken Rogoff is a professor of economics at Harvard University and former chief economist at the International Monetary Fund. He also just wrote a book called Our Dollar, Your Problem. $100 is not worth what it used to be. What was$100 bills, probably worth closer to$80 now compared to just six or seven years ago. But nevertheless, they're not something most people use every day. Certainly not in the U.S. Americans use cash in only about 14 % of financial transactions these days. And yet, there are more physical dollars in circulation than ever. That's according to Oliver Bullough. He writes about financial crimes.

4:17He's the author of the books Moneyland, and Everybody Loves Our Dollars. If you look at the value of US dollars in circulation, it doubled every decade, as long as I've been alive. Almost the entirety of that doubling has been made up by$100 bills. There were 20 years ago, just over 5 billion of them. Now there's almost 20 billion of them.

4:36Carmen Reinicke:The Federal Reserve estimates that the majority of those hundreds are held outside of the U.S. So if Americans aren't using them, who is? Why is there so much demand for cash money, despite the fact that ordinary people aren't using it, is something that I think is explainable essentially entirely by its use by criminals. The only real useful purpose for a high-denomination bill is if you want to move a lot of value in a small space at one time. And the only people that want to do that really are criminals. Well, the Fed might not agree with him entirely about that. Back in 2017, a Fed economist called Ruth Judson looked at the high number of$100 notes held by foreigners.

5:16She said it's hard to assess how much US currency is used exclusively for criminal transactions. I mean, dollars are popular with ordinary people all around the world. You know, people who can't trust their governments or banks. And, you know, US hundreds are a bit like gold. People buy them believing they'll hold their value. But Ken Rogoff says criminals do love big notes. So people, they hide it in safes. They hide it in their walls. I'm not making this up. There's tons of police evidence on this. You know, the$100 bills, you can fit conveniently in a little corner, depending on how many of them you have.

5:49And you have$20 bills even. You need five times as much space. They're five times as heavy. I mean, that may sound, that's ridiculous. No, it's a big deal. It's why they are so popular.

6:01Carmen Reinicke:And they're popular despite the rise of cryptocurrency. That's because there's no blockchain attached to a$100 bill, which makes cash even more anonymous than crypto. Oliver Bullo says criminals are using them both in tandem. It's not an either or. You have a great synergy between the users of cash to commit criminality and users of crypto. They just swap one for the other. So you have a real useful degree of acceptance on the street level and convenience on the international level. Governments have cottoned on to the fact that big notes can help criminals. And with one or two notable exceptions, most are steering clear of size these days.

6:41The Europeans stopped printing their 500 euro note, the famous Bin Laden, by 2019. Singapore quit printing its 10 ,000 Singapore dollar note. That's more than 7 ,000 US, by the way, in 2014.

6:53Carmen Reinicke:Here in the U.S., we considered getting rid of the$100 note back in the 70s. But Oliver says there's one big reason we didn't. The$2.4, slightly more than$2.4 trillion outstanding of U.S. dollar banknotes is a$2.4 trillion interest-free loan to the United States. If you take that away, then they're going to have to find that money from somewhere else and they're going to have to pay interest on it. So let me explain how this works. Do you have a$100 bill on you, Waylon? Of course you don't. It's not a problem. All U.S. dollar bills have this written on them, written on the top there, Federal Reserve Note.

7:29This means that it is a promissory note, an IOU issued by the Central Bank of the United States. You give the government$100 worth of stuff or work, and in return, the government gives you this note. The government holds your$100 worth of whatever and pays no interest on it, while you use the paper as a currency, which is pretty nifty, right?

7:47Carmen Reinicke:Yes. It's no wonder, as Ken Rogoff says, that printing$100 notes is an irresistible business for the U.S. government. They're good for the Treasury because they don't pay interest. Whereas if they borrow on the market, you know, right now the 10-year interest rate's 4.5%. They're not paying any interest. They like that. But Ken says it's penny-wise and pound-foolish for the government to keep issuing these large denomination notes. A lot of the people who are using the$100 bills aren't paying any taxes or as much taxes. And that's a much bigger number. That's right. It's not just drug dealers and money launderers who like big notes.

8:27Carmen Reinicke:Tax dodgers love them, too. Damn tax dodgers. Tax evasion is very large in the United States. The IRS estimated it was around a trillion dollars a year. The tax evasion swamps what they're getting from printing the notes. In other words, we lose way more money from tax evasion each year than we make from printing new currency. As a result, if they could, both Ken and Oliver would stop the government printing$100 bills tomorrow. They say it would be the single most effective thing the U.S. government could do to fight financial crime. And Ken says it wouldn't make that much difference to most Americans.

9:02The average person, many, many surveys show, doesn't use them that much. Yeah, sometimes somebody says to me, oh, I pay my caretaker$100 bills or I pay my trainer with$100 bills. But, you know, okay, I'm not trying to be judgy about it. But obviously the point of it is they're not reporting it in taxes. If we took them away, tax collections would go up. Enforcement would be easier. It's not just doing the deal. It's hiding the money, putting it into circulation. I mean, all of these things.

9:38Carmen Reinicke:The creation of a$250 note would be a big mistake, Ken says. I mean, sure, it would certainly beat out those Europeans with their 200 euro note. And it might net the U.S. government more money on the front end. Yeah, but it would make enforcement of financial and other crimes much more difficult. And tax crimes in particular. A$250 note would make it easier to dodge tax simply because cash transactions are easy to make anonymous, and it's a lot easier to transact in cash if you're using large notes. Now, Ken doesn't believe this note will come to pass for a variety of reasons. But if it did, he says, the government would end up losing a whole lot of tax money on the deal.

10:17And that would be really bad for America.

10:21Carmen Reinicke:America 250! I've just been yelling that indiscriminately. At every mention of America. This episode was produced by Angel Carreras with engineering by Kwesi Lee. It was fact-checked by Sierra Juarez. Kicking Cannon is our editor and The Indicator is a production of NPR.

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