Should we ban the $100 bill?

Ashok Rao has an excellent post on this question, and it is not obvious that a ban is in order.  Here are a few parts of his multi-faceted argument:

  • There is an information tradeoff. Imagine if criminals transacted only in $10,000 notes. It would be reasonably easy for intelligence agencies to sneak a traceable note to probe criminal networks. This would be close to impossible with a $20 note (not the least because this is a high velocity note used by normal people).
  • Citing the high use of $100 among criminals doesn’t mean much. Of course criminals use the lightest / most compact / highest denomination currency at their disposal. Therefore suggestions along the lines of “n% of criminal activity is transacted in $100 bills” mean little because if we got rid of the $100 and managed to avoid the problems noted in point (1) it would be the case that “n% of criminal activity is transacted in $20 bills”.

I found this information on premia interesting, note the premia serve as an implicit tax for trading in $100 bills, though I wonder who exactly reaps that surplus?:

  • Screenshot 2016-02-27 18.02.18.png

Finally, Ashok tells us this:

Would we not be hurting innocent people in oppressive regimes? Aren’t there autocracies in Africa and Eastern Europe that use HDN [high denomination] dollars as a means of trade in otherwise embargoed necessities?



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