Personal Finance

Why haven't bank notes kept up with inflation?

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  • May 24th, 2015 6:10 pm
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[OP]
Newbie
Jul 14, 2014
82 posts
New Westminster, BC

Why haven't bank notes kept up with inflation?

In 1935 we even had $1000 bills, now the highest we have is $100 even though inflation has devalued the loonie about 20 times in that time-frame. Combined with 10x reduction in banknote size, the highest bank note has about 200x less buying power than it did in 1935.

Just curious, when everything else has increased with inflation, why not bank notes as well?
8 replies
Deal Fanatic
User avatar
Sep 9, 2012
5897 posts
5071 upvotes
Oakville, ON
Several reasons that I can see:

- advances in use of things like debit cards, credit cards, and other kinds of electronic funds transfers have reduced the need for cash, hence reduced need for paper bills

- use of credit is more pervasive and people buy a $20,000 car on credit or bank draft whereas in the 30's without as much credit even bigger purchases like cars had to be made in cash

- not releasing larger denomination bills (and withdrawing ones that were previously issued) makes it harder for criminals to launder money and harder to deal with ill-gotten cash hordes
Sr. Member
Apr 28, 2014
675 posts
184 upvotes
Oakville, ON
CanadianLurker wrote: - not releasing larger denomination bills (and withdrawing ones that were previously issued) makes it harder for criminals to launder money and harder to deal with ill-gotten cash hordes
That is actually the reason why the $1000 CDN bill was withdrawn from circulation; too easy for criminals to launder large sums of money.

From Wikikpedia http://en.wikipedia.org/wiki/Withdrawn_ ... tes#.24500 :
Printing of the $1,000 note ceased in 2000. The denomination was withdrawn on the advice of the Solicitor General and the Royal Canadian Mounted Police (RCMP), as it was often used for money laundering and organized crime.[4] The Bank of Canada has requested that financial institutions return $1,000 notes for destruction.[5] The colour was pink.
Which is why $1000 bills were referred to as "pinkies".
Deal Addict
Jan 2, 2015
1633 posts
638 upvotes
Toronto, ON
A set of large bills isn't very convenient. Instead of giving someone a "bag of cash", you could get a certified cheque, which takes less space and is easier to get into the payee's bank, or something electronic. Of course, a cheque is slower, and not as private (if you want to keep the transaction hidden). The government is probably interested in the latter.

I suspect the demand for large bills isn't there. What sort of really expensive things could you actually buy with cash these days? Good luck getting a hotel room, plane ticket, car, or house. Cash is generally used for small purchases, such as fast food.

The Canadian Payment Association sets limits on how big a cheque can be: $25 million. I'm guessing a cheque that large would result in a very long hold. If you needed to buy something for $100 million, that's four or five cheques, or a lot of briefcases. (Someone calculated the typical briefcase could only hold $1 to $4 million in cash, and with inflation the value of a cash-stuffed briefcase is falling.)

On a vaguely related note, I saw a video where someone tried to pay $6000+ dollars in property tax bills in the US with $1 bills, and another person doing something similarly but with bills so tightly folded they took more than a minute to unwrap, each. (The guy got arrested because he insisted on staying until every dollar was counting, even after the business or government office closed.)
Deal Addict
Feb 26, 2008
1821 posts
1281 upvotes
bcdriver wrote: In 1935 we even had $1000 bills, now the highest we have is $100 even though inflation has devalued the loonie about 20 times in that time-frame. Combined with 10x reduction in banknote size, the highest bank note has about 200x less buying power than it did in 1935.

Just curious, when everything else has increased with inflation, why not bank notes as well?

What would you even do with a $1,000 bill? I rarely use cash at all, and if I do it's normally for a purchase of $5 or less. I wouldn't even know what to do with $100 bill. I guess $100s would be good for hookers and blow, but that's about it...
Deal Addict
Jan 2, 2015
1633 posts
638 upvotes
Toronto, ON
I recently bought a computer for a little under $1000. I have a reward card, so got back 1%. It's not much, but if I was able to buy a computer for $1000 in cash, I'm basically paying $10 for the right to use cash rather than credit. (My card and chequing account don't have fees, either, so it's basically free money.)

I had a problem with getting it online, since resolved, but I could have gone to a store and used my credit card there. The latter would cost me two bus tickets if I didn't have a metropass. If I used cash I would have to do it in person. (I can't even do it by mail, although that would have cost a stamp anyway.) So the cost in cash could have been $16 (two $3 tickets, plus no $10 cashback).

Any time you have to buy something expensive, there's both barriers to using cash and advantages to using almost anything else.

Finally, what mugger wouldn't enjoy a $1,000 bill?
Deal Addict
Feb 11, 2009
1020 posts
284 upvotes
FoFai2015 wrote:
Finally, what mugger wouldn't enjoy a $1,000 bill?
I'd rather have a stack of $20s. They won't take $1000 bills at the grocery store :-)
Jr. Member
Sep 26, 2009
129 posts
16 upvotes
FoFai2015 wrote: ... bills so tightly folded they took more than a minute to unwrap, each. (The guy got arrested because he insisted on staying until every dollar was counting, even after the business or government office closed.)
He got his a~~ in the brick house for being a tightwad. Poetry!

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