One puzzle about the money stock of the U.S. economy concerns the amount of currency [read: cash]. In 1998 there was about $460 billion of currency outstanding. To put this number in perspective, we can divide it by 205 million, the number of adults (age sixteen and over) in the United States. This calculation implies that the average adult holds about $2,240 of currency. Most people are surprised to learn that our economy has so much currency because they carry far less than this in their wallets.
Who is holding all this currency? No one knows for sure, but there are two plausible explanations.
The first explanation is that much of the currency is being held abroad. In foreign countries without a stable monetary system, people often prefer U.S. dollars to domestic assets. It is, in fact, not unusual to see U.S. dollars being used overseas as the medium of exchange, unit of account, and store of value.
The second explanation is that much of the currency is being held by drug dealers, tax evaders, and other criminals. For most people in the U.S. economy, currency is not a particularly good way to hold wealth. Not only can currency be lost or stolen, but it also does not earn interest, whereas a bank deposit does. Thus, most people hold only small amounts of currency. By contrast, criminals may avoid putting their wealth in banks, because a bank deposit gives police a paper trail with which to trace their illegal activities. For criminals, currency may be the best store of value available.
Pohl's law: Nothing is so good that somebody, somewhere, will not hate it.