Monday, April 26, 2010

A New US Dollar

On April 23, the US government introduced with great fanfare a new $100 bill.  Officials bragged about the clever printing innovations that would make the bills extremely difficult - if not impossible - to counterfeit.  The new product reflects a steadily-growing number of $100 bills in circulation - even though US citizens overwhelmingly use smaller bills, and ATMs rarely (if ever) dispense such big notes.

Most $100 bills circulate outside US national territory. Dollar bills are used nearly everywhere as a parallel means of exchange, especially in countries with weak and unstable currencies. In particular, the dollar is favored for corrupt deals and criminal operations, where cash often changes hands in suitcases or under the table.  Demand has been so brisk, that the US Treasury has kept the printing presses busy. Bills of $100 denomination or larger have increased by about $275 billion since the beginning of 2002, according to the New York Times. 

It appears that the US government is exporting about $30 billion per years in bank notes to the rest of the world.  Considering that the cost of producing these notes is relatively low, this gives the US a much-needed boost in its chronically unbalanced international payments, which in 2009 were $419 billion in the red.  The new bill apparently aims to shore up this valuable export market.

In the recent past, there have been many critics of the dollar as the world’s major currency.  The dollar is losing some of its luster as a universal store of value.  Large-denomination euro bills are now coming into favor.  In fact, circulation of large euro notes has increased about $600 billion in value since 2002, about twice the value increase of the large-denomination US dollar notes.  Clearly, people are not as keen on the dollar as they used to be.

Though slipping, US currency exports still continue to be a big and even vital business, and Washington hopes to keep it that way. 

Dollar notes are more than payment balances.  They are also convenient tools of foreign policy.  In the 1990s, Washington engaged in wholesale exports of dollars to complete with the Russian ruble.  According to press reports at the time, a jumbo cargo jet departed every week from Kennedy Airport, bound for Moscow, packed with crates of newly-printed $100 bills, direct from the Federal Reserve Bank of New YorkTens of billions of dollars found their way into the Russian economy by this aerial route, feeding the underground deals of the new oligarchs.

Washington also used greenbacks to finance the new government it created in Afghanistan with hundreds of millions in cash.  And soon after ousting Saddam Hussein, US authorities organized an airlift of currency to pay for expenses of the occupation government in Iraq. According to a later Congressional investigation, US Air Force C130 Hercules cargo planes ferried more than $12 billion in newly-printed US currency from New York to Baghdad. In just over a year, from May 2003 through June 2004, 363 tons of US currency crossed the ocean to Iraq in shrink-wrapped plastic containers.  The great majority of notes in these operations were in the $100 denomination.

The dollar is still big business and the printing presses keep on rolling.  The new hundred dollar note is a move to boost the dollar’s mystique, at a time when the greenback is losing its global standing.  But it will take more than a fancy print job to return the dollar to its former glory.

1 comment:

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