$100 bills, seignorage, and theft
An IM conversation
John Carney: Did you see this Swiss air theft story?
Felix Salmon: cool
John Carney: What I don’t get is why you would ship dollars from Zurich to JFK bound for the Fed.
Felix Salmon: Presumably it was a Swiss bank
they get deposits of dollars in Switzerland
ultimately those dollars need to make it back to the USA
John Carney: Shouldn’t they just like deposit them with the SNB?
Felix Salmon: SNB will only accept SwFr
John Carney: Or, more simply, destroy them and have the Fed credit their account?
Shipping seems like a lot of work
Felix Salmon: That’s the problem with cash
you can’t deposit it by taking a photo of it with your iPhone
John Carney: The ECB has dollar swap lines
Felix Salmon: as does the SNB
John Carney: So presumably it needs some dollars
Felix Salmon: not dollar BILLS
John Carney: It all feels very gold standardy
Felix Salmon: it’s a natural cost of seignorage
John Carney: The SNB should just be authorized to count and destroy the money.
Felix Salmon: how would that benefit the NY Fed?
John Carney: Well, it would reduce transaction costs of dollar denomination abroad.
Since shipping is expensive.
Felix Salmon: Given the degree to which $100 bills in Switzerland are likely to have been used for illicit purposes, I’m not convinced the Fed really wants to make their use any easier
John Carney: Sure. And I suppose it might have undesirable effects of increasing demand for dollars
therefore would be a policy tightening
Felix Salmon: That’s marginal, cash is a negligible portion of the USD money supply