In fact, the trend really seemed to start rolling as far back as the 1970s, according to this chart published in an economics paper by Feige:

Edgar Feige.





So what the heck is going on here? Inflation may have something to do with it--there just weren't as many things to buy in 1970 that might require one to slap down a $100 bill--but that still wouldn't explain why their proportion today has nothing to do with what people see in their wallets.

The short answer is that a lot of money is spending a lot of time outside the United States.

The cognoscenti look at the share of $100 bills as something of a proxy for foreign demand for US currency. An overwhelming majority of the $100 bills come from the Federal Reserve Cash Office in New York City, which handles the bulk of foreign shipments of US currency. A typical shipment is a pallet containing 640,000 such bills, or $64 million, according to a recent Fed paper.

Somewhat surprisingly, it's unclear exactly how much American money is floating around outside the US. Estimates run the gamut. In the 1990s, one high-profile estimate pegged the number at as much as 70%. But more recent estimates hover around 25%-30%.

And while there are plenty of reasons folks outside the US might want to hold dollars, the thinking is that most people are not using these $100 bills to buy milk and bananas. No, most economists seem to believe $100 bills are most often used as stores of value--almost something like mini-Treasury bills that don't pay any interest. This is especially so in developing countries, where problems with unstable currencies and inflation often mean the purchasing power of local currency gradually--or not so gradually--erodes over time.

The bills might circulate as payments in more developed countries, however. Payments for what? Well, that touches on any number of elements of what has been elegantly named "the informal economy." That is, the markets that function without the costs (taxes) and benefits (legal protections) of the state. Feige writes:

US currency is a preferred medium of exchange for facilitating clandestine transactions, and for storing illicit and untaxed wealth. Knowledge of its location and usage is required to estimate the origins and volume of illicit transactions. These include the illegal trade in drugs, arms and human trafficking as well as the amount of 'unreported' income, that is, income not properly reported to the fiscal authorities due to noncompliance with the tax code.

Large bills in outside currencies are indeed known to be a problem. In 2010, UK exchange offices stopped selling €500 notes, after police officials said 90% of the notes sold in the UK ended up in the hands of organized crime. Doesn't this present something of an ethical quandary for the US, if its largest bills are the currency of choice for criminals outside the US? It would seem so.