NCPA - National Center for Policy Analysis


July 18, 2007

Latin American immigrants' dependence on large-denomination U.S. currency is adding another cost to society, according to a new study by economists at the Federal Reserve Bank of Chicago.

Quoting author James Gleick, the Chicago Fed economists point out that "Cash is expensive -- tens of billions of dollars drain from the economy each year merely to pay for the printing, trucking, safekeeping, vending, collecting, counting, armored-guarding and general care and feeding of our currency."

The United States is on its way to becoming a cashless society.  However, in using cash, Latin American immigrants appear to buck the national trend.  According to the Fed economists, in their study of Latin American immigrants in Chicago:

  • The dramatic increase in the number of immigrants is supporting a growing demand for currency, notably in the $100 denomination.
  • The demand for $100 bills is greater in Chicago neighborhoods with higher concentrations of foreign-born Latin Americans than in other immigrant neighborhoods or other Chicago neighborhoods in general.

Why the preference?

  • Using Census data, the Fed study showed that among the foreign-born population in the United States, a higher percentage of Latin Americans than other foreign-born groups do not use banks.
  • More than half of Mexican immigrants were nonbankers, and the percentage of Mexicans who did not have a bank account was more than threefold the percentage of native-born Americans.

Cash has apparently become a means of storing wealth for Hispanic immigrants in America, and they put it to many uses.  Interestingly, the Fed researchers did not find statistically significant evidence that crime was important in explaining the demand for $100 bills, which is not to say the bills aren't used for that purpose.

Latin American immigrants' differential demand for cash is yet another example of inequitable cross-subsidization.  That is, the cost of heavily using cash is not borne proportionately by the immigrant users but ultimately falls upon others in the economy.

Source: Alfred Tella, "Currency and immigration," Washington Times, July 18, 2007; based upon: Carrie Jankowsi, Richard D. Porter and Tara Rice, "Against the tide - Currency use among Latin American immigrants in Chicago," Federal Reserve Bank of Chicago, Economic Perspectives, Second Quarter, 2007.


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