FYI Where Are All the Dollars ?
The close to $1500 currency per person in Canada, and over US$2000 of U.S. currency per person in the United States, are surprisingly large numbers. Currency is bulky, can be easily stolen, and pays no interest, so it doesn t make sense for most of us to hold a lot of it. Do you know anyone who carries $1500in their pockets? We have a puzzle: where are all these dollars and who is holding them?
One group that holds a lot of dollars are criminals. If you were engaged in illegal activity, you would not conduct your transactions with cheques because they are traceable and therefore a potentially powerful piece of evidence against you. This is why Tony Soprano had so much cash in his backyard. Some businesses also like to hold a lot of cash because if they operate as a cash business, which makes their transactions less traceable, they can avoid declaring income on which they would have to pay taxes.
The other group that holds Canadian and (to a larger extent) U.S. dollars are foreigners. In many countries, people do not trust their own currency because they often experience high inflation, which erodes the value of their currency; these people hold dollars as a hedge against this inflation risk. Lack of trust in the ruble, for example, has led Russians to hold enormous amounts of U.S.dollars. In fact, over half the quantity of U.S. dollars are held abroad.