Central Banks Won't Kill the $100 Bill: It's a $2.5 Trillion Interest-Free Loan
Cash use keeps falling, yet currency in circulation keeps hitting records. Central banks have every incentive to keep printing $100 bills: the money is effectively a $2.5 trillion interest-free loan to the U.S. government, and the price is convenience for money launderers worldwide.
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The scale of money laundering hasn't moved in thirty years
The most commonly used estimate of money laundering is 2% to 5% of global GDP a year, which at today's roughly $100 trillion GDP is $2 trillion to $5 trillion. That figure comes from a rough estimate by former IMF managing director Michel Camdessus in the late 1990s, and nobody has come up with a better answer since. Oliver warns that the more alarming fact is that the ratio hasn't changed in thirty years: decades of anti-money-laundering action have not shrunk the criminal economy, only barely held it back from growing faster than the overall economy.
— Oliver BulloughBanks spend $200 billion a year on AML for near-zero effect
When banks complain that KYC is too expensive, it isn't just whining. The U.S. passed the Bank Secrecy Act in 1970, and in 1989 the FATF turned anti-money-laundering into a global norm, forcing banks to hire compliance teams and install AI monitoring software. LexisNexis estimates global AML compliance costs about $200 billion a year — enough to solve world hunger and give everyone clean water. Yet the system generates a huge volume of suspicious activity reports every year, and launderers still stay ahead of regulators. The problem isn't that banks aren't trying; it's that the whole system is expensive, weakly feedback-driven, and almost nobody is accountable for the outcome.
— Oliver BulloughTrade-based laundering is an order of magnitude bigger than cash smuggling
Cash smuggling makes laundering inside the banking system look small, but the bigger chunk never touches money at all: value is hidden in goods. About $25 billion in cash flows into Mexico each year, while John Deere and Caterpillar farm equipment exported from the U.S. becomes the consideration cartels get back; European luxury goods flow to China, drugs and goods are imported back in the China direction, and the triangle is settled with misinvoiced paperwork. Global Financial Integrity estimates this kind of trade-based laundering at about $1 trillion a year. A million-dollar watch worn through customs is far easier to move than a million in cash.
— Oliver BulloughThe Vancouver model: Chinese cash demand meets cartel supply
Chinese citizens can only convert $50,000 a year, while wealthy Chinese have plenty of demand to spend abroad. The Vancouver model matches that demand with the dollar cash supply from drug cartels: bags of cash outside Canadian casinos are handed to Chinese gamblers, the money is lost at the tables, and the gamblers run up gambling debts; that debt is offset on the other end in China by an RMB transaction and the drug sales that follow. Looked at as just the gambling, it looks like a loss; looked at across the whole chain, it's a triangular settlement that simultaneously repatriates cartel money and moves Chinese capital out. The model later spread worldwide, with luxury goods, consumer goods and drugs all serving as vehicles for moving value.
— Oliver BulloughThe VAT loophole lets the same goods extract 20% over and over
Zero-rated cross-border transactions in the EU were meant to keep national tax authorities from having to audit each other, but they became an ATM: goods entering the UK from Ireland don't owe VAT, and when sold to an affiliated shell company 20% is added; that shell company re-exports the goods back to Ireland and can claim a refund from UK tax authorities for the 20% it never paid. Round and round it goes, hence carousel fraud. The UK once largely suppressed it with a multi-agency crackdown, and the fraudsters then moved to continental Europe, where it now runs about €50 billion a year, spreading from Lithuania all the way to Portugal. Criminal organizations have no ceiling on cooperation: the more they cooperate, the bigger they get.
— Oliver BulloughNobody uses cash, yet central banks are printing record notes
In the digital payments era, cash is down to about 9% of transactions in the UK and about 13% in the U.S., so by ordinary logic the supply of paper money should be shrinking. After Bank of England governor Andrew Bailey raised the banknote paradox in 2009, the phenomenon only intensified: the value of UK notes in circulation doubled, and the U.S. is near $2.5 trillion. Central banks blaming it on "store of value" doesn't hold up — surveys show the average American adult carries only a bit over $400, while per-capita U.S. currency in circulation works out to more than $7,000. The Fed estimates about 65% of U.S. bills are abroad, but that just pushes the question past the border: nobody knows whose hands these notes are actually sitting in.
— Oliver BulloughThe $100 bill is a $2.5 trillion interest-free loan to the government
Seigniorage can't simply be understood as the profit from printing money: a $100 bill costs 9 cents, but it isn't "sold" to you — you can always exchange it back for goods at face value, so the cash the public holds is essentially an interest-free loan. With nearly $2.5 trillion in U.S. currency in circulation, the U.S. government gets interest-free funding equal to about 6% of the national debt; federal interest payments are now about 19% of the budget, and if that $2.5 trillion also had to pay interest, that would add roughly another percentage point. This is exactly why central banks don't want to hear anyone discuss abolishing cash.
— Oliver BulloughAML incentives are inverted: the more reports, the less crime gets policed
Suspicious activity reports were born to be real-time intelligence for law enforcement, but reality is the exact opposite: banks hire thousands of compliance officers to fill out reports, law enforcement has no resources to read them, and most reports go into a black hole; a bank that misses one can face billion-dollar fines, while getting it right earns no reward. The side effects include debanking — large numbers of people who come under suspicion, many of them Muslim, get cut off from financial institutions. The guest's fix isn't to hire more compliance officers but to generate fewer reports, actually read them, and genuinely prosecute financial criminals — raise the cost of money laundering instead of drowning everyone in paperwork.
— Oliver BulloughIn their own words · checked verbatim
But the most widely used estimate is that We're talking about between 2% and 5% of global GDP. And since global GDP is approximately $ 100 trillion, that means between $ 2 and $ 5 trillion being laundered globally.
Oliver Bullough5:09
Cash is a hugely significant tool for moving illicit wealth around the world. And even that is dwarfed by what we refer to as trade-based money laundering. It is essentially a way of moving value around the world, not in the form of money at all, but in the form of stuff.
Oliver Bullough12:14
So there is very little demand for cash from society. So you would expect, therefore, the supply of cash to be collapsing. And yet at the same time that the demand is very low, For some reason, supply is very, very high and getting higher all the time, consistently, almost everywhere.
Oliver Bullough27:27
if you take a $ 100 bill out the bank, you're not actually buying that $ 100 bill because you can sell it back at any time for the same amount that you bought it for. So actually, it's an interest-free loan to the government is what it really is.
Oliver Bullough32:31
if the US stops producing its $ 100 bill, and I wish it would, I don't think that there is anyone really, who would be inconvenienced by the lack of $ 100 bills except the bad guys.
Oliver Bullough35:34
Criminals have always liked to stack different techniques on top of each other. And so, yeah, cash remains the most useful criminal tool at a street level. But it's bulky, it's not secure. It's kind of annoying and smelly. It's annoying to count and so on. So if you can get away from using that as quickly as possible in order to move it around the world, that's where crypto comes in and is super useful.
Oliver Bullough39:40
Instead, we have a system that piles a huge amount of paperwork on financial institutions and a huge amount of expense and occasionally fines them for their trouble, but doesn't really do anything to stop financial crime. And that's kind of, as we say in Britain, ass backwards.
Oliver Bullough48:52
Figures
| Global AML compliance cost per year | About $200 billion | 9:10 |
| Drug cash flowing into Mexico | About $25 billion/year | 13:17 |
| Scale of EU turnover-tax fraud (carousel fraud) | About €50 billion/year | 23:25 |
| Cash payments as a share of all transactions | About 9% in the UK, about 13% in the U.S. | 27:27 |
| Total U.S. currency in circulation | Close to $2.5 trillion | 27:27 |
| Fed estimate of the share of U.S. bills circulating abroad | About 65% | 30:28 |
| Cost to print a $100 bill | About 9 cents per note | 32:31 |
| U.S. federal debt interest as a share of the federal budget | About 19% | 33:33 |
Glossary
- seigniorage
- The profit from issuing currency; in modern terms it can be seen as an interest-free loan the government gets from currency holders.
- trade-based money laundering
- Hiding and moving illicit funds through misinvoicing, transshipping high-value goods and similar methods.
- Vancouver model
- A laundering cycle that uses casinos and debt to match wealthy Chinese demand for cash with drug cartels' cash supply.
- banknote paradox
- The phenomenon in which everyday cash use keeps falling while the total value of notes in circulation keeps hitting new records.
- SAR (Suspicious Activity Report)
- A form financial institutions file with law enforcement to report suspected money laundering or criminal transactions; there are now so many that nobody reads them.
How to listen
Bank compliance, cross-border payments and monetary policy professionals, plus anyone curious about why banning the $100 bill is so hard.
The first ~4 minutes are a live-event ad and small talk; jump straight to 5:09.