Gold? Bitcoins? No, the Real Safe Haven Is the C-Note

Before the collapse of the prices of bitcoins and gold, predictions of the death of fiat money were running rife among the goldbug (and Bitbug) crowd. But paper money has never been more popular. From December 2007 through the end of 2012, the U.S. currency in circulation has surged by 42 percent, according to the Federal Reserve Bank of San Francisco, even though the growth of alternative payment methods such as electronic transfers and debit cards has been outpacing the use of cash.

What explains the passion for greenbacks? The key, says San Francisco Fed president John Williams, lies in the composition. Denominations of $50 and under, the currency used for most purchases, have been growing more slowly than the economy, while the number of $100 bills in circulation has surged. Fear of bank collapses and near-zero interest rates on deposits are the most likely reason Americans are holding more C-notes as a store of value, whereas Europe’s debt crisis has stoked foreign demand. The share of U.S. currency held abroad has risen to nearly 66 percent from 56 percent before the financial crisis. Reports of the dollar’s demise were premature.