As the United States retires the penny, it should also reexamine larger cash denominations. The nickel is an obvious inefficiency costing 13.78 cents to produce, but the more consequential reform is retiring high-value paper notes. Phasing out the $100 and $50 bills would make tax evasion and many criminal enterprises harder to run, increase financial transparency, and impose only modest costs on lawful cash users.

The evidence is striking. The stock of U.S. banknotes in circulation has grown far faster than the economy. In recent years, currency in circulation rose by 7% annually, while GDP per capita grew at under 3%.

Even as everyday use of cash and checks declines, high-denomination notes — especially $100 bills — have surged. If 2023’s $100 bills were divided evenly, each American would hold about 56, up from 11 in 1997: for $50s, the per-person count rose from four to seven. Those trends suggest that large bills increasingly serve functions outside ordinary, legal transactions.

It has been argued for almost a decade by Kenneth Rogoff and others that removing $100 and $50 notes would deliver clear public-policy benefits. With fewer high-value notes available, large cash transactions become harder and costlier to execute. That raises the expected return to traceable payment methods, improves recordkeeping for businesses and households, and reduces the scope for underground economic activity. Over time, more commerce would flow through banks and electronic payments, improving tax compliance and potentially lowering enforcement costs.

There are costs to removing high-value notes to consider. The most important is lost seigniorage — the implicit revenue the government earns by issuing fiat money — because higher-value notes are cheaper to store and move relative to their face value. There are also modest welfare losses for people who prefer cash for lawful reasons. Those losses are likely concentrated and small: most everyday transactions use smaller denominations, and $20 bills and below would remain available for routine cash needs.

Holders of large bills would have options: deposit them in banks, exchange them for smaller notes, or use other legal channels.

Critics worry about capital flight and offshore storage of wealth. Those are legitimate concerns, but they do not outweigh the benefits. Offshore banking and asset diversification already exist for a variety of legal reasons; eliminating large domestic notes would not eliminate those practices but would reduce the ease with which large sums move anonymously in cash.

A phased elimination of $100 and $50 bills is feasible and proportionate. It would shift many high-value transactions into traceable channels, reduce opportunities for tax evasion and illicit trade, and preserve cash for everyday lawful use. The change would not be costless, but the public-safety and fiscal benefits make it a sensible reform.

William T. Alpert is an emeritus associate professor of economics at the University of Connecticut/InsideSources