Money Mystery: Who's Holding U.S. Currency?

The federal government, which tracks the amount of money it prints, says $900 billion of its currency is in circulation. While experts have determined that fully half of those U.S. dollars are being held in other countries, a lot of cash is unaccounted for.

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ARI SHAPIRO, host:

The government tracks the amount of cash it prints, and it says 900 billion is the total number of dollars in the world right now. That's actual currency - dollar bills - not blips on a screen. The odd thing is a lot of that money is missing. NPR's David Kestenbaum is part of our Planet Money project. He helps explain all the mysteries of the economy, including this one. Good morning, David.

DAVID KESTENBAUM: Good morning.

SHAPIRO: They really don't know where it is?

KESTENBAUM: That's right. According to the Federal Reserve, there is something like $900 billion in cash out there, and in this country, the U.S. population is something like 300 million people. So, if you divide it out that means each person would have $3,000 in cash.

SHAPIRO: $3,000.

KESTENBAUM: So, how much do you have in your wallet?

(Soundbite of counting money)

SHAPIRO: $35.

KESTENBAUM: All right, I've got like $42. So, where is the rest of...

(Soundbite of laughter)

SHAPIRO: We're missing some money.

KESTENBAUM: I must say we're definitely missing some money. So, what's your guess?

SHAPIRO: Businesses, cash registers, the back of a store.

KESTENBAUM: OK, right. So, that's a good guess. I asked someone who has studied this question, Ken Rogoff. He's an economist at Harvard University. Is it cash registers?

Dr. KENNETH S. ROGOFF (Economics, Harvard University): That's very easy to check, and the short answer is cash registers have only a very small percentage of it, that, you know, they account for a couple percent of the total. It's not big at all.

KESTENBAUM: All right. So, another idea is banks, right, the big vault. Here's what Rogoff says.

Dr. ROGOFF: So, indeed, banks are holding some cash, and it adds a little bit, but they're not storing gigantic amounts. I mean, if you think about it, there's a bank in my neighborhood that for some reason gets robbed periodically, and they did again.

(Soundbite of laughter)

Dr. ROGOFF: And the person made off with $2,000. That's great, but the whole bank was holding $2,000?

(Soundbite of laughter)

Dr. ROGOFF: So, clearly it's not in the banks.

SHAPIRO: OK. So, if most of it is not in cash registers and not in banks, where is the rest of this $900 billion we're talking about?

KESTENBAUM: Really, there's only one other option.

Dr. RICHARD PORTER (Vice President and Senior Policy Advisor, Federal Reserve Bank of Chicago): It's outside the U.S.

KESTENBAUM: That is Richard Porter. He is a vice president and senior policy advisor at the Federal Reserve Bank of Chicago. He was part of this team that looked into this puzzle for a number of years, and they concluded that - get this - basically one-half of all U.S. dollars are outside the United States.

SHAPIRO: Wait a minute. So, like, Russian cab drivers, restaurant workers in Turkey?

KESTENBAUM: Right, exactly.

SHAPIRO: People in China are just hoarding American dollar bills?

KESTENBAUM: Well, I mean, think about places where people don't trust the local currency, right? They're worried about inflation or something. So, Porter gives the example of a farmer in Argentina who wants to be paid in dollars.

Dr. PORTER: The last time I made an estimate, which was ages ago, for Argentina, but they were close approaching $50 billion U.S. dollars, presumably mostly in $100 bills, mostly, you know, in mattresses or safety deposit boxes, to protect their savings.

SHAPIRO: OK. So, you said something like half of it is overseas. That takes care of 450 billion. Where's the other 450 billion?

KESTENBAUM: Well, it kind of has to be right here in the United States somewhere.

SHAPIRO: Like, buried in the ground?

KESTENBAUM: Yeah or maybe, you know, in mattresses or maybe in what's called the underground economy, you know, drug dealers; you always think of drug dealers that keep suitcases of cash.

SHAPIRO: Prostitution, things like that?

KESTENBAUM: Or small businesses, just using cash to avoid paying taxes. Actually, Ken Rogoff at Harvard actually thinks that's a sizeable chunk of it. He's studied other countries, and they also have this missing-currency puzzle.

Dr. ROGOFF: All these other countries have the same problem, and we know their cash isn't being used abroad, not in any big amount. And yes, we're different and we're special, but maybe we're not that different and special as we think.

SHAPIRO: So, what are the consequences if this big chunk of American cash is being used in illegal, presumably untraceable, ways?

KESTENBAUM: Right. Well, I mean, there is some debate about how much is used in illegal activity. But perversely, there is this way in which we benefit from it, because, sure, the government may be missing out on some tax revenue, but we do benefit financially from the fact that people love the U.S. dollar. So, if all the drug dealers and the tax avoiders around the world switch to yen or something, Rogoff says that would cause some trouble for us.

SHAPIRO: So, we should be proud that that farmer in Argentina wants to use the U.S. dollar, in case his economy collapses, instead of the Japanese yen.

KESTENBAUM: We should be proud, though, it would be good for all of us if everyone felt safe with their home currency.

SHAPIRO: NPR Planet Money correspondent David Kestenbaum. Thanks very much, David.

KESTENBAUM: You're welcome.

SHAPIRO: You can hear more from NPR's Planet Money team on their podcast at npr.org/planetmoney.

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