It is the Christmas season, and perhaps we should only be thinking about peace and goodwill to all men. But it is also the most intense season of consumer spending, as almost all retail businesses make or break their profit picture for the year.
Let me say first that the American consumer is probably the most ignorant and, therefore, foolish when it comes to money and spending. For example, a study made a couple of months ago showed that the majority of Americans had not yet paid off their debt—primarily credit card—from last year’s Christmas shopping and will, therefore, be carrying more debt when the calendar turns to 2020.
Granted that credit cards are part of everyday life in every economy where the citizens do not cover their private parts with banana leaves. However, there are also many economies—the Philippines included—where people spend only the cash that they have. The average American has more than one credit card, while less than 10 percent of Filipinos even have a credit card.
And when it comes to “financial literacy,” Americans score poorly. Twenty percent in the US still believe their currency is backed by “something.” The majority think that the money that they deposit in a bank is still owned by the depositor despite the courts ruling repeatedly that is not true.
Nonetheless, there are much larger information gaps that involve us all. Enough “American bashing” for now.
In 2016, for the first time in history, the physical amount of $100 denomination bills surpassed the number of $1 bills. This is a big deal when you consider that as of 1998, the number of the smaller denominated bills was twice the number of $100 bills. Note that this happened during a time when the use of all forms of electronic transactions increased significantly, and the governments were discouraging the use of cash.
Further, almost $1.5 trillion of the world’s physical cash, with $100 bills making up the vast majority, is unaccounted for. Where is that $1.5 trillion of physical money?
The Federal Reserve Bank of Chicago estimates that 80 percent of all $100 bills last year were actually in circulation in foreign countries. We know that in unstable economies people keep some of their wealth in dollars if they can, like in Venezuela. However, it is not just a “dollar thing.” The Bundesbank calculates that more than €150 billion are
being hoarded in Germany.
Australia’s central bank says its best guess is that as much as 10 percent of its currency is “missing.” New Zealand started printing a new bank note in May 2016—circulating along with its “old” bank notes—and the Reserve Bank of New Zealand says 75 percent of the new currency bills are unaccounted for.
The Royal Bank of Australia’s governor said: “The biggest use of cash as a store of wealth is in safes, under beds and at the back of cupboards, both here in Australia and elsewhere around the world”.
The significance of this is that people hoard physical cash when they are worried about the future. In the Philippines, about 14 percent of physical pesos are “unaccounted” for. This is probably not due to hoarding, but the fact that bank account penetration is low.
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