Paper Money

Economist calls for the return of the $500 note

The government ceased deliveries of large-denomination notes in July 1945 and some officials have even advocated for the elimination of $100 bills. However, an economist argues that the $500 Federal Reserve note should be returned to circulation.

Original image courtesy of Heritage Auctions.

Hardly a week goes by without a story about a future cashless society or the importance of removing high-denomination notes from circulation. A voice of dissent has now risen from Ohio State University in an opinion by economist and research scientist, Jay L. Zagorsky.

Writing in The Conversation, an online academic journal sponsored by a consortium of leading research universities and charitable foundations, Zagorsky argues the opposite — that we should bring back the $500 note and other large bills. Recent natural disasters, he says, shows the flaws in a system entirely dependent on electricity. No matter how much money may be in your account, it can be impossible to access it. The matter is further complicated by recent security breaches.

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He calls it a “national security issue,” and enumerates three pitfalls to the cashless society: (1) Electricity has be available at all times; (2) communication needs to always be open between all network components; and (3) the network has to be secure at all times. All three of these requirements have recently been spectacularly compromised.

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One needs only to look at Texas, Florida, and Puerto Rico for power outages, or the California wildfires for the collapse of cell towers, or the travesty at Equifax, or the potential for cyberattacks  from the likes of North Korea, for a critical security breach.

Zagorsky writes, “These events show just how precarious the three pillars of a cashless society are and how quickly they can falter. When this network breaks down, people who do not have cash are forced to barter. Bartering is devastating for an economy, in part because it needs a ‘double coincidence of wants.’ ”

He maintains that the positives of bringing back large bills outweigh the negatives, particularly during disasters. Higher denominations are preferable for the sake of compactness and efficiency. In any case, regardless of denomination, people should store some cash at home in case of emergency. “Cash,” he advises, “gives you purchasing power when everything else fails.”

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