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July 6, 2011

The 2,500 year experiment with solid currency

Filed under: Cash,Currency,Economics,Finance — Razib Khan @ 8:30 am

This article in The New York Times focuses on cash in terms of paper currency, but the lessons are generalizable to coinage as well, which pre-dates paper currency by 1,500 years. Some fascinating numbers:

…In 1970, at the dawn of plastic payment, the value of United States currency in domestic circulation equaled about 5 percent of the nation’s economic activity. Last year, the value of currency in domestic circulation equaled about 2.5 percent of economic activity.

…Indeed, cash remains so pervasive, and the pace of change so slow, that Ron Shevlin, an analyst with the Boston research firm Aite Group, recently calculated that Americans would still be using paper currency in 200 years….

… Thanks to technological advances, the average dollar bill now circulates for 40 months, up from 18 months two decades ago, according to Federal Reserve estimates….

…. In 1989, the Fed replaced 46 percent of returned dollar bills. Last year it replaced 21 percent….

We don’t know if the United States of America will be around 200 years from now, so the question about the persistence of cash is rather moot in my opinion. But in any case, the marginalization of (relatively) untraceable cash for abstract monetary units of value ...

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