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There was a demonetization in India. I heard that this was difficult for Indian residents to handle.

I understand most of the money is in digital forms, but there is still a large amount of actual currency in circulation with other countries holding a large amount of it and I am sure a big chunk is in $100 or $50.

Can the world's leading currency USA have a demonetization with large USD bills such as $50 and $100?

If yes, how will that affect cash users immediately and long term?

How will it affect me if I am paid with cash inside or outside the US? How will it affect me if live in a country with unstable currency and I use US dollars for short-term savings? How will it affect those who prefer to pay for goods and services with cash?

With due respect, this is not a hypothetical question and is a possibility per 'The Trade Dollar" being demonetized in 1876. Thanks @HartCO . Certainly there is contrary argument that "demonetization in USA is a not a possibility per 14th Amendment prevents demonetization" thanks to @chepner

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    There are now 4 votes to reopen. I am curious to hear from these members why this is on topic, in their opinion. – JoeTaxpayer Apr 7 at 19:29
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    @sofageneral: Agreed that it is not a useless thought experiment. But the question asks about (1) government "Can the US demonitize legal currency?" and (2) economics "How would doing so affect a particular class of people?". Neither of those are individual finance, which is the scope of this site. A question asking "How can I protect myself against demonitization of paper bills so that I don't lose anything if it happens?" would be welcome. Contrary to Ben Miller's comment, as it stands now it is not about impact on individuals, but to the effect on an economic class. – Ben Voigt Apr 11 at 15:08
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    @Ben Voigt: I think 1 billion indians would disagree with you that Modi rupee scheme didn't affect their personal finance. I was actually amazed that the indians have such high tolerance for personal financial catastrophe. – sofa general Apr 11 at 15:14
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    I voted to close because it asks for hypothetical answers to a hypothetical policy. Without a real policy on the table, "how will that effect common people immediately" does not appear to me to be answerable so I won't reverse my vote at this time. On the other hand, since this was asked, I have become aware of a preparation by the military governor of Hawaii in the event of a Japanese invasion, so there is one historical possibility; but it remains not clear if this is how the US would demonetize in the future: en.wikipedia.org/wiki/Hawaii_overprint_note – user662852 Apr 11 at 15:16
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    @Neil - Mission accomplished. The question has been reopened and will remain so. I will probably come back in a few days to clean up the long trail of comments, most of which are no longer necessary. – JoeTaxpayer Apr 11 at 21:41
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Demonetization, in the sense of an individual type of coin or banknote ceasing to be legal tender, happens all the time. With the exception of the US, virtually every country in the world has retired notes and coins in the last fifty years, with in most cases the entire line of banknotes being replaced over that time. In addition many countries have switched currency entirely, such as the decimalization of UK currency and the replacement of European currencies with the Euro.

Such demonetizations have almost invariably proceeded without significant harm to either the economy or individuals. Replacements of individual banknotes have had virtually no effect.

The issue with the Indian demonetization was largely about the lack of advance notice, and the short time permitted to exchange old style notes. Most demonetizations avoid these problems by some or all of the following:

  1. Giving substantial warning of the withdrawal of notes
  2. Allowing substantial time in which both new and old notes are legal tender
  3. Allowing or enforcing exchange of old style notes for new style, even after they cease to be legal tender

Assuming these procedures were followed there would be very little effect on the US or world economy.

  • Good points, I regret in my comment not qualifying that it's a bad idea to do it the way India did, not that it's necessarily a bad idea in general. A gentle retiring vs a more abrupt transition is certainly necessary. – Hart CO Apr 3 at 18:26
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    The US would have special problems. I'm told that around a third of US banknotes are not even in the US. – DJClayworth Apr 3 at 18:32
  • Also India had an issue of lots of people who did not have bank accounts which meant that all their money was stored as cash; I would expect the amount of physical notes that would be affected in a more "electronic/banking" economy would have been significantly smaller. – SJuan76 Apr 3 at 18:41
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    Probably an entirely separate question, but what part of the 14th Amendment prevents demonetization? I'm guessing Section 4, but it's not obvious to me how that applies. (Especially since it predates the demonetized trade dollar by several years.) – chepner Apr 3 at 20:45
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    @Malvolio This all appears to be your personal reading of the constitution. Do you have any authoritative statements that this is the correct interpretation? – DJClayworth Apr 12 at 20:04
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Yuu really have three separate questions here. There's the legal question of whether the US actually could pass a law that demonetized some currency. While IANAL, I don't think it's Constitutionally possible, given the 5th Amendment's prohibition against taking private property without just compensation.

Then there's the question of whether it would be politically feasible to do so. You might get better answers on the Politics site, but I very much doubt that it would be possible to get such a bill through Congress.

Finally, there's the practical issue. In the context of the current US economy, $50 and $100 bills are simply not large denominations. For instance, I often see people paying for groceries (presumably for a large family) with a couple of $100 bills. So as a practical matter, demonetizing them in any sense would probably cause major public protests.

Then there's the question of exactly what is meant by "demonetization". Is it declaring the bills to be worthless, or just removing them from circulation? Under the second definition, the US HAS effectively demonetized large denomination bills. It hasn't printed anything larger than $100 since the 1940s, and has withdrawn most of them from circulation: https://www.federalreserve.gov/faqs/currency_12600.htm The remaining ones are mostly in the hands of collectors, who pay well over face value for them, though AFAIK they remain legal tender.

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