Stashing Cash

Greenbacks burst out all over

Although many people believe that the U.S. is fast becoming a cashless society, it is actually awash in a glut of paper money. In 1980 there was some $600 in cash in the economy for every person in the country, compared with just $162 in 1960. The number of $100 bills increased more than eightfold during that period, and the $100 bill has now replaced the $20 as the denomination with the highest total value in circulation.

Economists find this cash explosion puzzling. Many thought the rise in crime during the past two decades had made people carry less money. Consumers often hold less cash in inflationary times like the past few years because they know that the value of their money shrinks as prices rise. Finally, the ballooning use of credit cards and the rapid growth of financial innovations like telephone banking should be trimming the use of cash. But despite all that, Government presses are forced to keep turning out more and more currency.

David Whitehead, an economist at the Federal Reserve Bank of Atlanta, in an article in the bank's monthly magazine concludes that the U.S. may be on its way to becoming a nation of cash hoarders. The most popular bills to keep are hundreds. An incredible 90.6% of all $100 bills in circulation have been squirreled away by their owners, says Whitehead, compared with just 7.6% of $1 bills.

While more Americans may be putting aside a $50 or a $100 bill as emergency money, the underground economy is also a big demander of cash. Marijuana, prostitution and other illegal New times goods and services are provided on the basis of cash and carry. Many self-employed people swell the amount of currency in circulation by requesting to be paid in cash rather than by check in order to evade income taxes.

Whitehead says that foreigners also fuel the demand for currency by holding American greenbacks abroad to protect themselves against changes in the value of their money. Despite the declining value of the dollar in the past decade, American currency remains ideal for this purpose because it is readily accepted almost anywhere in the world.

With the increased use of cash come problems. Last week Atlantic Richfield Co. stopped accepting credit cards, claiming that the resulting lower overhead costs would permit it to drop the price of gasoline by about 30 per gal. ARCO, though, is so fearful of gasoline stickups that it is installing safes in most of its stations.

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