Jörn Tenhofen of the Swiss National Bank shows that although the share of cash transactions has declined, the total value of banknotes in circulation is steadily increasing in most countries. Between the 2008 financial crisis and 2021, the value of banknotes in circulation in the US increased by 168%. That’s an annual growth rate of 8.6% compared to an average inflation rate of 2.2% over the period. In Switzerland, the value of banknotes in circulation has increased by 125%, or 7% per year, compared to an average inflation rate of 0.0%.
Banknotes in circulation
Source: Tenhofen (2025)
The main cause of this excessive banknote growth is the large banknotes, CHF 200 and CHF 1,000 in the case of Switzerland. They used to account for about 40% of the total value of banknotes in circulation in 1950, but now they account for about 75%.
Value shares of large banknotes in Switzerland
Source: Tenhofen (2025)
Why would people hold larger banknotes in a world where cash is dying?
One of the reasons Tenhofen cites is the storage of value. Especially in a world of negative interest rates, people will prefer to hold cash over bank deposits, where they can face fines for holding cash above a certain threshold (as was the case in Switzerland in late 2010).
When interest rates are low, the opportunity cost of holding cash decreases and even becomes an opportunity gain when interest rates are negative. Accordingly, you would expect the circulation rate of large banknotes to decrease in a low interest rate environment because people hold onto their large banknotes longer.
And indeed, this can be observed in Switzerland, where the circulation rate of large banknotes fell when interest rates fell, but increased again in recent years as interest rates rose.
Rate of major banknotes and interest rates in Switzerland
Source: Tenhofen (2025).
However, there may also be other factors at play. Tenhofen points to factors such as economic, financial or political uncertainty, and these may well play a role.
But can I mention one more reason that someone who works at the Swiss National Bank might not be able to mention: taxes.
Large banknotes are an excellent means of avoiding taxes, whether to pay employees for jobs done ‘off the books’ or, as reader GM recently pointed out to me, to avoid gift and inheritance taxes, since cash gifts cannot be traced by the tax authorities and therefore do not count towards the gift tax exemption. That is why these large banknotes have apparently been nicknamed ‘Bin Ladens’ (the existence of which is known, but rarely seen).
Viewed from this angle, the incredible growth of large banknotes in most countries indicates a growing size of the shadow economy of tax avoidance and increasing ‘leakage’ of tax revenues collected by governments.
#cash #king