Notes gone underground—who has all the missing $1,000s?

At last week’s Fraser Institute seminar for journalists, where 25 scribes from across the country got together for two-and-a-half days instruction in economics from three economics profs, including myself, we were talking during one session about measuring the underground economy. One way, I explained, was to look at the amount of currency outstanding in an economy and see how it compares to how much would reasonably be needed to conduct all the economy’s above-ground business. And I quoted a factoid I’d prepared for just this purpose.

“How many of you have a $100 bill on you?” I asked. No one did—or at least admitted to it. “How many of you have ever seen a $100 bill?” I continued. Most people had, but not often and not many. That would have been my answer, too. I’ve had a $100 bill in my possession maybe five times in what is now getting to be a long life. And I’ve seen other people with them maybe three or four times that. (He doesn’t get out enough, you may be thinking.) “Given their apparent scarcity,” I went on, “how many $100 bills do you think are out there?”

Then the punch line. According to the Bank of Canada’s Annual Report 2018 (at p. 111), there are 13 for every man woman and child in Canada. The total value of the $100 bills outstanding as at December 31, 2018 was $50,111,600,000, which accounts for more than half of all the Canadian currency in circulation. And that $50.1 billion was up more than $3 billion from 2017. Three billion dollars in $100 bills is 30 million $100 bills—a new one for almost everybody in the country in 2018.

Somebody out there has a lot of $100 bills!

But it gets worse. Catching up on my email later that day, I learned that the Bank is putting a number of already discontinued banknotes out to pasture by declaring them no longer legal tender—a power it was recently granted by parliament. Once that happens (on January 1, 2021) existing $1, $2, $25, $500 and $1,000 notes won’t any longer be automatically acceptable for the payment of debts. If payer and payee agree that they will be, fine. But neither side will be obliged to accept them, as they must now, given their status as legal tender. If you do have any such bills, however, you will still be able to take them to the Bank of Canada (or to your local financial institution acting on its behalf) and get new bills in exchange for what you’ve been carrying around for the last 84 years or so. Which is how long the special purple $25 bill commemorating the silver jubilee of King George V has been out there. (Note that according to the Bank of Canada’s inflation calculator, $25 in 1935 was the equivalent of $472.22 today, which means the purple bill was quite a celebration, especially when you consider that, inflation aside, people had much lower real incomes then than they do now.)

I don’t think I’ve ever seen one of these $25 bills. (I am old enough to remember $1 and $2 bills, which stopped being produced in 1989 and 1996, respectively). Nor do I believe I’ve ever seen either a $500 or $1,000 bill, not outside a museum, at least. The $500 note was discontinued in 1935, not long after being introduced. The $1,000 bill was discontinued in 2000, at the request of the solicitor-general and the RCMP, who argued it was facilitating criminal transactions. Being able to hide large amounts of cash easily makes life smoother for bad guys.

Almost 20 years on, however, bad guys may still be using them. As at December 31, 2018, there were still 673,027 of these notes outstanding, as the Bank’s handy summary table shows. No doubt collectors account for some of those holdings. And some of the $1,000s may simply have been permanently lost—not through inadvertence (it’s hard to imagine losing track of a $1,000 bill) but by fire or having gone down with a ship or through some other misadventure, maybe involving gangsters, harbours and cement shoes.

The number of $1,000s still outstanding is down noticeably from 2014, when it was 824,646. That’s 150,000 fewer $1,000s outstanding in just half a decade. But that almost $700 million worth are still out there strikes me as remarkable. By contrast, there are only 151,026 $1 bills and 207,257 $2 bills still outstanding, which strikes me as consistent with people keeping the odd $1 or $2 bill in a shoe box of memorabilia. I don’t think I’d hold onto $1,000 for nostalgia’s sake, however.

Dostoevsky wrote a novella called Notes from Underground. The Bank’s data describe Notes Gone Underground. I bet many of the stories behind them would be worthy of a Dostoevsky novella. Pity we’ll probably never get to hear them.