Friday, April 12, 2013

Where Nervous Europeans Are Really Putting Their Money

Steve Hanke tweets:
Contrary to press chatter, the surge in demand for a competing currency in EU is not #bitcoin, it's the $100 bill.
 Fed chairman Bernanke may have a surprise down the road for dollar holders in the form of price inflation, but it does appear that is where a lot of scared money is headed. Hanke writes in FT:

Demand for $100 bills has jumped since 2008 as nervous Europeans stuff them under the mattress, providing vivid proof that the world still loves the dollar and confirming the benefit to the US of the currency’s status as a global reserve. 
The amount of dollar cash in circulation has risen by 42 per cent in the last five years, with a main reason being demand from Europe, according to a top US Federal Reserve official.
“As Europe’s crisis worsened in the spring of 2010, US currency holdings rose sharply,” said John Williams, president of the San Francisco Fed, in his bank’s annual report.
“And they continued to rise as economic and political turmoil and uncertainty about the future sent Europeans scrambling to convert some of their euros to dollars.”[...]
There was a step change in demand for dollars almost on the day that Lehman Brothers failed in 2008.
In the five years to September 2008, US currency in circulation grew at an average of 3.8 per cent a year; since then the average growth is 7.5 per cent.
“In the six months following the fall of the investment bank Lehman Brothers in 2008, holdings of $100 bills soared by $58bn, a 10 per cent jump,” noted Mr Williams.
According to one set of estimates by the Fed in Washington, the share of US currency held abroad has risen from about 56 per cent to nearly 66 per cent in the last five years.[...] 
Total dollar cash outstanding of $1,175bn finances about 10 per cent of the US national debt and saves about $29bn a year in interest at today’s rates. If two-thirds of that cash is outside the US then it amounts to a $19bn-a-year gift from the rest of the world – roughly equivalent to the gross domestic product of Cyprus.

1 comment:

  1. Mildly interesting story: my dad was stationed briefly in Turkey in the early 70's. I remember him saying that at that time there was a premium on $100 bills and that a serviceman could make a bit of profit selling them to the locals.