From time to time we hear calls for withdrawing today’s lowest and the highest denominations of US currency, the pennyand the $100 bill, from circulation. In the last year a growing chorus has been calling for prohibition of the $100 bill.
The rhetoric of the anti-high-denomination gang has gotten increasingly shrill. Erstwhile Bank of England economist Charles Goodhart in September called the European Central Bank and the Swiss National Bank “shameless” for issuing “vastly high-denomination notes,” namely the €500 and SWF 1000, “which are there to finance the drug deals.” Last month former Treasury Secretary Larry Summers writing in the Washington Post, and citing a working paper by Harvard colleague Peter Sands and student co-authors, extended the indictment to the US $100 bill: it too is used by criminals, so let’s get rid of it.
I have an alternative suggestion for removing $100 bills from the illegal drug trades: Legalize the trade. Your local pharmacy doesn’t pay cash to its wholesale suppliers. My suggestion would reduce the demand for high-denomination currency. Today’s high-denomination-currency prohibitionists, like today’s drug prohibitionists and yesterday’s alcohol prohibitionists, only think about the supply side. But does anyone think that banning the $100 bill during Prohibition (when it had a purchasing power more than 11 times today’s, as evaluated using the CPI) and even higher denominations would have put a major dent in the rum-running business, if an army of T‑Men couldn’t?[1]