The United States is one of the few major economies in the world that has yet to modernize its physical currency. While countries around the globe have transitioned to polymer banknotes and higher denomination coins, American bills and coins remain unchanged despite calls for an update. But even as digital payments grow in popularity, experts say paper-and-ink cash isn’t going away anytime soon.
The Costs of Printing Paper Money
The United States prints over 6.5 billion notes each year amounting to approximately 34,000 tons of currency, according to the Bureau of Engraving and Printing. Paper money must be constantly redesigned and reprinted as it wears down from everyday use. In 2023 alone, the Federal Reserve will spend $931.4 million just to print enough new bills to replace worn out ones.
Over the lifespan of a $1 bill, it costs approximately 5 cents to produce according to the Federal Reserve Bank of San Francisco. That may not seem like much, but it adds up quickly with over $2 trillion worth of paper currency in circulation. The costs of transporting, securing, and tracking paper money also pile on.
In contrast, a dollar coin could remain in circulation for 30 years according to the GAO. That longevity reduces production costs per coin to under 2 cents apiece. Coins also weigh less than paper money, resulting in transport and storage savings.
Phasing out low denomination bills in favor of coins could offer substantial cost reductions for the government. Canada eliminated its $1 and $2 bills in favor of loonie and toonie coins in the 1980s, reducing production costs by hundreds of millions annually.
The Rise of High Denomination Bills
While lower denomination bills like the $1 and $5 see heavy use, higher value notes are surging in demand in America. The amount of $100 bills in circulation has doubled since 2009. By 2016, more C-notes were in use than $1 bills. Some experts estimate 80% of the $100 bills circulate overseas, used as a reliable store of value in unstable economies.
Domestically, the rise in $100 bills may correlate to the growth of the cash intensive illegal drug trade. The Bureau of Engraving and Printing ramped up production of high denomination bills in the 1990s as Colombian drug cartels sought to launder profits. More recent growth of legal marijuana sales in states like Colorado and California could also be fueling demand.
Large cash transactions are increasingly seen as suspicious by law enforcement and may indicate tax evasion or money laundering. But physical cash remains appealing for legitimate uses due to anonymity and ease of exchange. The Bureau of Engraving and Printing continues to feed demand, printing over 1.2 billion $100 bills annually.
The Accessibility Factor
While the $100 bill rules in America, the $2 bill remains an elusive outlier still in circulation but rarely seen. First introduced in 1862, this unusual denomination once filled the gap between the $1 and $5 notes. As larger bills became common, the $2 was largely phased out worldwide.
But in 1966, the Treasury chose to bring back the $2 Federal Reserve Note to commemorate the 200th anniversary of the birth of Thomas Jefferson. Sparse use in everyday transactions is the main reason Americans don’t see two dollar bills often. Cash registers simply don’t have slots for them and most people recirculate them into banks.
Accessibility has been the downfall of other less popular coins and bills too. Half dollar coins once filled pay phones and parking meters across America. But as inflation drove up costs, these machines began to require quarters instead. Since half dollars no longer had a practical use, circulation plummeted.
Higher denomination bills met a similar fate as larger ones became preferable. $500, $1,000, $5,000, and $10,000 dollar notes were all discontinued by 1969. Without utility in everyday spending, few Americans chose to hold onto these bills. Practicality it seems, dictates what stays in our wallets and purses.
The Reluctance to Redesign Cash
The rest of the developed world has moved on from paper and ink money in favor of plastic polymer bills and multi-colored coins. The Australian dollar switched to polymer in 1988 with Canada, Singapore, New Zealand and others following suit. The UK released its first plastic 5 pound note in 2016 to much fanfare. Even the developing world has embraced this technology with plastic bills circulating in countries like Mexico, Nigeria, Chile, Vietnam, and Brunei.
Polymer notes offer much greater durability over traditional paper, lasting 2–4 times longer in circulation. The improved lifespan leads to substantial savings on production and replacement costs. These high tech bills also have advanced security features that combat counterfeiting better than paper.
The one dollar and two dollar coins of Australia, Canada, the UK, and the Eurozone also show how modern currency can adapt to inflation. By using differentiated coins instead of paper notes for small denominations, mints reduce printing expenses. Countries are able to replace less cost efficient low value bills with inexpensive to produce metal coins.
But the United States has resisted any major change to the familiar greenback or copper pennies and nickels, despite potential savings. Upgrading to just dollar coins could save $150 million annually according to a GAO report. Larger denominational coins could bolster those savings further. But the legacy of “paper or plastic” creates reluctance here.
Cash is Going Digital, Not Extinct
In many ways, physical currency seems antiquated compared to digital payments via credit cards, phones, and smart devices. Cashless transactions now make up over 30% of all payments according to a Federal Reserve study. Contacless options boomed during the pandemic as customers sought to reduce surface touching.
But while the use of cash is trending down annually, digital payments have not replaced tangible money entirely. Cash remains widely used, representing nearly 20% of transactions under $10 and close to 40% of payments under $25. For small everyday purchases, cash persists as a convenient and anonymous option.
There are also merits to using cash as a personal budgeting tool. The tangible nature of spending bills and coins makes consumers more aware of their purchases compared to swiping a card. Low income Americans and the unbanked still rely heavily on cash as well. Despite the growth of digital, American physical currency isn’t disappearing from cash registers and wallets anytime soon.
Conclusion
Though often overlooked as a mundane part of daily life, the currency in our pockets reveals much about society’s ideals, limitations, and nefarious temptations. The battle between digitization and tangible money is seemingly decided in favor of convenience. But cold hard cash and the tactile, visual elements of coins and bills still maintain an appeal all their own. Dollars and cents are interwoven into American culture, language, and iconography, making a drastic change unlikely. Like the penny, the paper note persists out of habit and tradition as much as utility.
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