Wipe Out the Benjamins?
A $100 bill, if you can keep it.
In the May 9, 2022 Wall Street Journal, Markos Kounolakis, a visiting fellow at the Hoover Institution, a former Moscow correspondent for NBC Radio, and the “second gentleman” of California, writes that he wants to hurt Russians by rapidly phasing out the U.S. $100 bills that many of them have. His article is titled “For Russia, It’s All About the Benjamins.”
So while sanctions have failed to dissuade Mr. Putin’s military aims, in part because they do little to affect the well-being of most Russians, rapidly phasing out the $100 could cause real domestic backlash against the war in Ukraine. In the current Russian banking environment, there wouldn’t be an easy way to convert these discontinued bills to other currency. Russians’ savings would be reduced to paper.
It would be impossible then to hide the effect of Mr. Putin’s war from his base. President Biden should say that the $100 bill is terminated because of the Russian leader’s war in Ukraine and the violence he has inflicted on civilians. Mr. Putin can obscure and spin this all he wants, but Russians will still know that his actions led to their savings being wiped out.
Kounolakis has fallen victim to the idea that when country A’s government hurts people in country B because of actions of country B’s government, people in country B will go after their own government. The more likely effect is that they will unite with their own government against the nasty government of country A that did them harm. Putin’s actions may well have led the U.S. government to do the nasty thing to them. But they will know that the U.S. government’s actions “led to their savings being wiped out.” I discuss that in more detail here.
Kounolakis goes further. He writes:
It could even be a good idea to sunset the $100 world-wide. Almost 80% of U.S. $100 bills reside overseas and a lot of that fuels bad actors. Easy-to-transport cash is a key to global corruption and crime, as former Treasury Secretary Larry Summers has argued. Large Western bills like the $100 are what terrorists and drug traffickers use to conduct much of their trade. This is how the still-circulating €500 bills got their moniker “bin Ladens.”
A lot of it fuels bad actors. But what percent? 50%? 20%? 10%? And although he talks about terrorists and drug traffickers in the same sentence, there’s a big difference. Terrorists generally kill innocent people. Drug traffickers sell drugs to willing buyers. Moreover, a lot of innocent people find $100 bills incredibly useful. Kounolakis might find it hard to believe, but about 5.4% of American households don’t have bank accounts. If he got his way, he would be inconvenienced very little. But his policy would inconvenience a lot of innocent people a lot.
And notice his last sentence, about €500 bills. One way the U.S. government gets revenue is with seigniorage on its currency. The U.S. dollar competes with the Euro and the Yen. While the U.S. dollar is still dominant, one disadvantage it has vis-à-vis the Euro is that the U.S. doesn’t have a $500 note. Kounolakis’s proposal would increase that disadvantage.
I rarely find the comments of readers on the Wall Street Journal’s site worthwhile. Today, however, was a rare exception. A number of readers had good criticisms of Kounalakis’s proposal. Here was my favorite, from John Guerin:
I just don’t like the idea of wiping out some innocent person’s retirement to hurt a dictator that feels no pain. A bridge too far.
Trivial Note: The person whom Ben Franklin’s expression reminds me of is Jack Benny.
May 11 2022 at 12:17am
This is the kind of scheme some 13-year-old girls would come up with. “Let’s do X to A and then A will realize Y.” Ultimately, A just ends up disliking the girls.
If we could send 10,000 ambassadors to Russia to explain the situation, then perhaps this plan would work. Absent the ambassadors, this plan is guaranteed to accomplish exactly the opposite of what Kounolakis wants.
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