Chapter 5: Problem 24

The total amount of U.S. currency in circulation divided by the U.S. population comes out to about $3,500$dollars per person. That is more than most of us carry. Where is all the cash?

Short Answer

Expert verified

The total amount of U.S. currency in circulation is distributed among various sources, such as banks, businesses, foreign countries, and individual savings. A significant portion of the cash is held by banks and their ATMs, while some of it is located outside the United States due to the U.S. dollar's role as an international currency. Additionally, some people store cash as savings in secure locations. With the growing use of non-cash forms of payment, most individuals don't need to carry the average amount of $3,500 in cash, resulting in a discrepancy between the average circulation per person and the amount typically carried by individuals.

Step by step solution

Understand the Context

To give an answer to the question "Where is all the cash?", we need to consider various factors and scenarios that could contribute to the distribution and holding of cash in the U.S. economy.

Cash in Circulation

Not all cash is in the hands of consumers or citizens. A significant portion of cash in circulation is held by businesses, financial institutions, and government organizations, which use it for various purposes like daily transactions, reserve holdings, or emergency funds. These cash holdings contribute to the total cash in circulation but not to the cash in individuals' hands.

Cash Holdings in Banks and ATMs

The majority of cash that is a part of the U.S. currency in circulation is held in banks and their ATMs. Banks keep cash on hand to fulfill transactional needs, such as withdrawals or payments. This means that a significant portion of the dollars in circulation is stored in banks waiting to fulfill the customers' demands or withdraws.

Cash in Foreign Countries

The U.S. dollar is an international currency and is widely used for global transactions. Thus, a considerable amount of U.S. cash in circulation lies outside the United States. Residents, businesses, and governments of foreign countries hold U.S. currency for trade or as a reserve. This contributes to the total cash in circulation but doesn't directly impact the cash held by U.S. citizens.

Cash Held as Savings

Some people keep cash at home or in other secure locations, either as a form of savings or for emergency situations. This cash is part of the circulating currency but isn't carried around daily by individuals.

Non-cash Forms of Payment

In today's digital world, the use of non-cash forms of payment such as debit cards, credit cards, mobile payments, and online transactions has increased significantly. This reduces the need for individuals to carry a large amount of cash with them at all times, which contributes to the difference between the average circulation per person and the amount carried by individuals. To sum up, the cash in circulation is spread across various sources such as banks, businesses, foreign countries, and individual savings. Due to the increasing use of electronic forms of payment, most people don't need to carry the average amount of $3,500 as cash.

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The total amount of U.S. currency in circulation divided by the U.S. population comes out to about \(3,500\)dollars per person. That is more than most of us carry. Where is all the cash?