Dollar's Popularity Saves Feds Billions

THE Bureau of Engraving and Printing has been working three shifts a day, seven days a week, this year. That's been necessary to meet a rapidly growing demand for United States currency. This is saving Uncle Sam literally billions of dollars.

Many of the new US notes are going abroad. They are being bought in inflation-ridden Buenos Aires, where they are called ``Argendollars.'' In the weeks after Iraq's invasion of Kuwait, the demand in the Gulf area for greenbacks was so great that the Bahrain office of an American brokerage house, Smith Barney Harris Upham & Co., found US currency ``virtually impossible to get,'' notes international economist J. Paul Horne. In Eastern Europe and the Soviet Union, the new freedoms to travel and trade, plus the weakening of national currencies, has created a strong desire to acquire Federal Reserve notes along with German marks as a store of value or means of exchange.

As a partial result, the outstanding amount of US currency has risen from $221.9 billion at the end of last year to $241.5 billion in September, an increase of almost $20 billion.

``That's a very rapid rate of growth,'' says Richard Porter, a Fed official in Washington. It compares with about $10 billion for all of 1989 and around $15 billion for the year before.

The Fed has no accurate way of keeping track of whether its notes are inside or outside of the country. ``Fundamentally, we don't know where that money is held,'' says Mr. Porter, assistant director of the division of monetary affairs. But it does get some information from commercial banks and the Treasury hinting that billions are flowing overseas. Since the amount of outstanding currency has almost reached $1,000 for each American man, woman, and child, common sense also indicates a large chunk of that currency must be held by foreigners.

Whether the cash is held by foreigners or US residents, it amounts to an interest-free loan for the federal government. Each note, whether a $100 bill or a $1 bill, costs about 2.6 cents to print. The Treasury reaps seigniorage on the face value above that cost. In other words, it gets first free use of that money. So, if by the end of the year, the amount of outstanding currency has risen $25 billion, the amount of financing the Treasury must do to finance the deficit is reduced by almost $25 billion.

Further, since cash pays no return when sitting in someone's wallet or purse, the government saves the interest cost on all that currency each year - perhaps $17 billion per year and growing.

``It looks like a winner,'' says Porter.

Experts estimate that billions of notes are used by the illegal drug business. That partially accounts for the strong demand for large denomination bills - $100s, $50s, $20s. But the explanation for this year's growth in currency demand seems to be financial and political troubles abroad.

In Argentina, for instance, there is around $5 billion of US currency in circulation, estimates Carlos Adamo, the Bank of Boston's general manager in Buenos Aires. Many stores list the price of goods in both dollars and the local currency.

Argentina suffered an inflation rate of more than 1,000 percent last year. Inflation, though coming down, could be 800 percent this year, says Mr. Adamo. So Argentinians do not trust their own currency. That distrust was heightened when the Argentine government last December arbitrarily required its people to accept a 10-year dollar bond, paying a modest interest rate, for their austral bank deposits. These bonds are now selling at half their face value.

``Argentina is a demonetized economy,'' says Adamo, noting that outstanding currency and bank deposits amount to only 4 percent of total national output, compared to 30 or 40 percent in such countries as Chile or Mexico. In effect, the US dollar has to a considerable degree replaced the austral. Even with economic reform, an Argentine government will need years to restore confidence in the national currency, says Adamo.

The Bureau of Engraving and Printing in fiscal 1990 printed about 7 billion notes, up a billion from 1989. In January it expects to open a new plant in Fort Worth, Texas, with a capacity of 3 billion bills per year with two shifts, to meet the burgeoning demand for greenbacks. It is a profitable business.

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