New estimates of U.S. currency abroad, the domestic money supply and the unreported economy

Abstract

Despite financial innovations that have created important new substitutes for cash usage, per capita holdings of U.S. currency amount to $2950. Yet American households and businesses admit to holding only 15 percent of the currency stock, leaving the whereabouts of 85 percent unknown. Some fraction of this unaccounted for currency is held abroad (the dollarization hypothesis) and some is held domestically undeclared, as a store of value and a medium of exchange for transactions involving the production and distribution of illegal goods and services, and for transactions earning income that is not reported to the IRS (the unreported economy hypothesis).We find that the percentage of U.S. currency currently held overseas is between 30-37 percent rather than the widely cited figure of 65 percent. This finding is based on the official Federal Reserve/Bureau of Economic Analysis data which is a proxy measure of the New York Federal Reserve"s (NYB) "confidential" data on wholesale currency shipments abroad. We recommend that the NYB data be aggregated so as to circumvent confidentiality concerns, and be made readily available to all researchers in order to shed greater light on the questions of how much U.S. currency is abroad and on the particular location of overseas U.S. dollars.The newly revised official estimates of overseas currency holdings are employed to determine the Federal Reserve"s seigniorage earnings from 1964-2010, which have provided a $287 billion windfall for U.S. taxpayers. Overseas currency stock data are also used to derive estimates of the domestically held stock of currency as well as narrow and broad measures of domestic monetary aggregates. These domestic monetary aggregates are believed to be better predictors of future economic activity than traditional monetary aggregates and are tested to determine their ability to predict fluctuations in real output and prices. Domestic cash holdings are finally used to estimate the size of the U.S. unreported economy as measured by the amount of income that is not properly reported to the IRS. By 2010, we estimate that legal and illegal source unreported income" is $1.9 -$2.4 trillion, implying a "tax gap" in the range of $400-$550 billion. Currently, we estimate that 18-23 percent of total reportable income is not properly reported to the IRS.

Concept, Motives and Channels of Digital Shadow Economy: Consumers’ Attitude

“…It slightly differs from the term illegal digital economy, which stresses violation of the established legal regulations on digital business rather than a pursuit for profit (Arango, Baldwin-Edwards 2014). The term unreported digital economy reveals evasion of tax contributions in digital business (Feige 2007(Feige , 2012Gaertner, Wenig 2012). Finally, the term digital unrecorded economy points out circumvention of the defined regulations and requirements on reporting business or trade activities performed in the Internet (Karanfil 2008;Feige, Urban 2008).…”

Determinants of Russia's Informal Economy: The Impact of Corruption and Multinational Firms

“…Empirically, a strong association between regulation and the informal economy is recorded (World Bank 1995;Loayza 1996;Galli and Kucera 2003;Loayza et al 2006;Enste 2010). Excessive regulations (regulation burden) increasing operating costs are found to be associated with larger informal economies (Schneider and Enste 2000;Friedman et al 2000;Tanzi 2002;Djankov, La Porta, López-De-Silanes, and Shleifer 2002;Feige 2012). Friedman et al (2000), for example, showed that regulatory burden includes costs related to complying with license restrictions and leads to increased costs for firms, which may encourage firms to move to the informal economy.…”

A methodology for determining the ‘cash economy’ in the European Union via an announcement effect

“…Given this degree of difficulty the impression of the cash economy glimpsed above may have merit. For a specialist housing economist, familiar with the data and institutional structure of their economy furnishing a more precise calculation 9 In this respect it is interesting to note that Professor Willem Buiter claims that the high denomination euro bank notes (200 and 500 bills) are "making the euro the currency of choice for underground and black economies …" and that Feige (2012) reports how the US fraction of the money stock made up of $100 bills grew from 20.9% in !963 to 73.3% in 2008. would seem, on this evidence, a worthwhile task. If other 'launderable' assets are identified and measured then the methodology proposed here can be improved.…”