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As people hoard cash, banks worry they may print too much

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December 13, 2019

The world's cash supply is dwindling. Even though banks are issuing plenty of notes, people are taking cash out of the system and stuffing it away in sock drawers and other "safe" places. 

According to a report in the WSJ, banks are trying to follow the money trail, but they can't seem to track down where huge quantities of notes are vanishing off to. Adding to the confusion, many parts of the world are going cashless, relying less on notes and coins and more on contactless cards and mobile apps to pay for things. 

Ruth Judson, a Federal Reserve economist, wrote in a 2017 paper that about 60% of all U.S. currency, and about 75% of $100 bills, had left the country by the end of 2016 — for a total of about $900 billion in U.S. dollars kept overseas, the WSJ said.

Where is it all going? Likely, people are hiding or hoarding cash, and they may be doing it for several reasons. For instance, in politically unstable countries, where the value of a currency can't always be relied upon, socking money away can provide protection against economic turmoil. Money launders often prefer cash because it helps them conceal the origins of ill-gotten gains, and hoarding cash is also popular among those who fear an economic collapse. 

"People hide their money everywhere," Sven Bertelmann, head of the Bundesbank's National Analysis Centre in Mainz, Germany, told the WSJ.

People will bury money in the garden, hide it in attics or store it in places long forgotten about. "It happens again and again that people keep money in an envelope and then they shred it by mistake," he said. 

The problem is, if central banks don't know how much cash is in circulation, they could end up printing too much and diluting the money supply.