Suppose the US really wanted to hurt the “drug lords” and other wealthy undesirables. Could they announce a recall (“demonetisation”) of all $100 bills and replace them with new ones - making the old ones worthless after a certain (e.g. one year) date? 80% of US $100’s circulate outside the US.
India did something similar (for the same reason) with its high-denomination notes a couple of years ago - but 99.3% of the notes were exchanged within the 50-day deadline (they had predicted only an 80% return) - but that 0.07% that were not exchanged was worth $2 billion. But overall - the process was considered a failure. For the article - $1 US = 68 rupees. “Crore” is 10 million; “lakh” is 10 thousand.
I can’'t see that high a percentage of US $100’s being exchanged - so wouldn’t this be a money-maker for the government - and hurt the illegal drug business? You limit the amount that can be exchanged at one time; take ID info from the exchanger; and question those who exchange the max multiple times.
Why wouldn’t a majority of C notes be exchanged? Lots of people keep a stash of cash. Maybe not millions of dollars, but in a country of 330 million an average of a few thousand or even just a few hundred each adds up. Americans probably have more cash on hand than the average Indian. You’re going to have government agents question millions of citizens in the time span of 1 year?
On top of this being a time and expense boondoggle, I’m sure some legal scholars would bring up the 4th and 5th Amendments.
I think it would make people leery of holding them for rainy days. I knew a Russian who told that when his grandmother died they found $1000 in old style (pre 1928 large) notes in her mattress. They took them to the US consulate who were happy to convert them to rubles.
But I think it would be a terrible idea (and could be illegal since it amounts to repudiating a debt).
Pretty sure that ship has sailed, given that just carrying large amounts of cash has been treated as probable cause to arrest for drug crimes for years.
One of the US’ largest exports is little pieces of paper with 100s printed on them. Sometimes you’ll hear about ‘trade deficits’, which is basically when other countries trade actual goods for these little pieces of paper. People in other countries like to keep them because they expect them to hold value over time.
Not only would the US lose this huge and little-acknowledged export, but suddenly the flow would reverse and people would trade back these little pieces of paper for actual US stuff.
Note that a lot of the people holding onto these little pieces of paper aren’t drug dealers, but are ordinary folks in third world countries where hyperinflation is a thing or a fear. These people would find it much harder to cash out than massive drug cartels would.
Also note that money issued by the US in 1793 has been legal tender ever since, and dollars have been circulating all that time. Only the British Pound can compete with that timespan. (there are British Pounds in second- and third- world mattresses, too.)
But any British banknotes that predate the latest revision date can only be exchanged at the Bank of England. Turn up with some pre-1945 £500 notes and they will cheerfully exchange them for modern £20s. Of course, you could have bought a decent house in 1945 for £500 so you will have lost out big time.
I see that Euroland has stopped issuing 500Euro notes because they were largely used for illegal transactions. Existing notes (500 million or so) are still legal tender E200 is now the largest note being printed. I imagine that anyone turning up at a bank with a large number of E500 notes will be subject to some scrutiny - money laundering rules are pretty strict over here.
How could it be illegal? Numerous nations routinely turn over their currency to stay ahead of counterfeiters. Why should the US be the only saps who don’t? You want to hide money in a mattress you should consider that risky. It seems pointless to keep old style currency valid since it defeats the purpose of counter-counterfeiting. You want the old style bills to be considered untrustworthy.
As for 3rd worlders keeping them to shield from inflation I suggest that gold or silver would be a better hedge. We’re not obligated to take their concerns into consideration.
Also, demonetization has precedent. It was done with US postage stamps during the Civil War.
What does the USA constitutional provision about the debt “not be repudiated” mean? Is it possible the Supreme Court could interpret that to mean that old bills can never be declared void?
The India ploy worked so well, I imagine, because very little of the underground cash was held outside of India. In fact, there were a bunch of “gotchas” that made life difficult. You had backpackers from Europe begging on the streets of India (!) because apparently to exchange bills, it had to be done at banks and you had to have an account. I was there just after, and the other major problem was there was nowhere near enough actual cash to go around - so ATMs typically were empty, and when filled were emptied almost immediately. And they only removed the 500 and 100 bills, replaced with new 500 and 2000 bills. All the rest stayed the same.
OTOH, a significant part of the US cash is in foreign hands as a hedge against weaker currencies. I suppose the requirement to exchange at specified points would satisfy the clause against repudiation; but then deny people the right to visit the USA and so exclude a lot of opportunity to trade. That would just mean the bills would trickle in over time. There is no law against carrying large sums - you simply have to declare them at customs, you have to fill out forms when you do bank transactions over $10,000 etc. The police will not charge you in the USA with drug trafficking, they will simply steal your money like any third world country under the guise of asset forfeiture for crime. Then you have to prove you are not guilty to get it back. (Fun fact, a few years ago one report had the average amount of an asset forfeiture from New York police stops being about $180 - obviously the proceeds of crime, no other explanation)
North Korea apparently changed its currency a few years ago, to combat the rise of private enterprise trading and markets - people were getting too rich and using the money to bribe officials. The USSR had persistent rumors about a new currency about to be introduced, since with no consumer goods available, people were accumulating decent amounts of money. One rumor said there would be red rubles and green rubles, and you would only be able to buy vodka with the limited red ruble bills to combat alcoholism. (Never happened)
For an example of a country that did exactly this look at what India did as in your example. Hint: it wasn’t pretty and it did not really do anything to curb crime. Why would it be different in the US where we have way more electronic currency?
I think the main problem with this is, if you look at a $100 bill, it says, “This note is legal tender for all debts, public and private,” and I don’t think Congress, much less the Treasury department, has any authority to say, “Not any more, they don’t.”
Doesn’t Canada do this every few years when new notes are introduced? I thought the process involved making the old, obsolete notes no longer legal tender for purchases unless they were exchanged for new notes.
The usual US procedure is to just quit making the old style, and let them gradually fall out of circulation through normal wear and tear. The life of a bill in circulation is something like 15 years for $100 bills, and quite a bit less for smaller denominations.
In 2021, certain Canadian notes will cease to be “legal tender” (i.e. not accepted for payment of debts) - but banks will still accept them. Otherwise - all notes issued by the Bank of Canada since its founding in 1935 are legal tender and have never been recalled. Notes issued prior to that date can still be redeemed at the Bank of Canada.
Part of me would like to see this happen just to see the various meltdowns, frenzied finger pointing, mouth frothing ravings and full blown feces bombs from the various extremes of American political and fiscal thought. Freemen of the land, hard core Libertarians, gold-standard zealots, basically anyone who hates the Federal Reserve. I’m not saying their arguments could make sense, just that they would be fun to watch them lose their collective shit.
Or maybe I’m wrong. Maybe The Powers That Be could institute this plan and it would barely make a ripple in the news. I wouldn’t bet money on that.
In the Bank of Canada’s books, banknotes are a “liability” ($90 billion at the end of 2018), balanced out by “assets” generated by the production of the $90 billion - invested in Government securities. See page 70 of the BofC’a 2018 annual report:
When the various notes become longer legal tender in 2021, will they be removed from the liabilities (or would they have to be officially cancelled)? It’s only a billion, and it amazes me that there is still $673 million of Canadian $1000 bills out there.
No, the old Canadian notes will still be a liability for the Bank of Canada. They’re not being demonitised (ie of no value). It’s just that a merchant doesn’t have to accept them. If you take them into a bank, the bank will exchange them for face value. The bank will then return them to the Bank of Canada, which will have to pay the chartered bank the face value of the old notes. It’s a way of encouraging redemption of old notes without demonetising, which can weaken the reputation of the currency. Like the US and the UK, Canada is one of the few countries which has never defaulted on its currency, contributing to its value as one of the standard reserve currencies.
And that issue of confidence in the currency is one of the main reasons against the OP’s proposal. Right now, one of the strengths of the US dollar, and why it is so valuable, is because the US has never defaulted on its currency. That is what démonétisation is: a form of default. Why would you throw that strength away?
The two plus centuries of reliance on US currency is a pillar of the US economy and the world economy. It contributes to the US dollar being the primary reserve currency in the world. Why would you throw that away and weaken the reputation of your currency, and by extension your economic strength?
Note that “legal tender” does not mean that anyone has to accept them for anything other than debt. If you take a Benjamin to the grocery store, they’re free to say “We won’t take that; hand over those groceries and we’ll put them back on the shelves”. They’re free to say “That doesn’t look like the new bills, and we don’t trust the old ones not to be counterfeited”, even if they take (new) 100s.
I can’t find it now, but a while back, I found a page on the US Treasury website stating that since the Civil War, when the federal government first started issuing banknotes, they’ve never devalued, revalued or recalled any notes. The idea is that even a 150-year-old ten-dollar banknote will still be redeemed by the Treasury at the same value. (This is different from whether ten dollars today has the same purchasing power as it would have 150 years ago. We’re also ignoring the fact that an old banknote is probably worth more than face value on the collectibles market.)
Except they sorta did. In 1942, the military governor of Hawaii recalled all U.S. currency in the (then) territory and replaced it with special banknotes for circulation only in Hawaii. The idea was that if the Japanese invaded the islands and got their hands on a lot of currency, they wouldn’t be able to use it anywhere except Hawaii. The government also incinerated $200 million worth of the recalled bills, rather than trying to ship them back to the mainland.
Granted, there was a war on and Hawaii was a territory, but there was a period of about two years where, if you were there, you had to exchange your regular American money for different American money.