Since the start of the recession in December 2007 and throughout the recovery, the value of US currency in circulation has risen dramatically. It is now fully 42% higher than it was five years ago.
What explains the rapid rise in currency holdings at the same time other methods of payment are displacing the greenback?
Williams writes, in his essay in the Federal Reserve Bank of San Francisco annual report, that around the world, during periods of political unrest or war, cash—especially the currency of a stable country like the UnitedStates—is seen as a safe asset that can be spirited out of harm's way with relative ease. And that is what has happened since 2007, particularly in the holding of $100 notes.
He believes that this will only change when there is less uncertainty and interest rates rise to 'more normal levels', so the cost of holding cash rises.
Read more in the full article - highly recommended - here.
Like this item? Get our Weekly Update newsletter. Subscribe today