About August 2018
High-denomination currency joins together two seemingly unrelated subjects: macroeconomics and crime. Criminals love high-denomination paper money because it’s valuable and largely untraceable. Payments in cash can also be made off the books; indeed, it’s easier not to record such transactions than to record them, which enables tax evasion.
But high-denomination paper money is also where a great deal of the total cash of any economy will tend to reside. Regulations on this type of money can have macroeconomic effects that may harm lawful consumers and businesses. There’s a trade off, then, between law enforcement and crime deterrence on the one hand, and monetary policy on the other.
Joining us this month are four economists who have examined this problem. Finance journalist J.P. Koning writes the lead essay, in which he argues for large notes that gradually depreciate relative to small notes or bank deposits; this would discourage people from holding them for too long. Doing so would also capture the value now being lost to tax evasion, and in effect it would tax criminal transactions. Responding to him will be James McAndrews, formerly of the Federal Reserve Bank of New York; Professor Joshua R. Hendrickson of Mississippi State University; and Cato adjunct and Professor William J. Luther of Kenyon College.