If you have seen the new $100 bill, I think you will agree it looks like Monopoly money (one of them, plus four houses, will buy you a hotel on St. James Avenue).
But when you think of why it was developed, it shows the great economic and financial strength of our nation.
Why was a new C-note needed? Too many people were counterfeiting the old one. It got so bad that when my wife and I had to pay the exit tax in Zimbabwe this year, the sign said, "$20 fee must be paid in U.S. dollars, but no $100 bills will be accepted."
The fact that so many people are counterfeiting the $100 bill is really evidence of the dollar's strength. (You don't hear about people counterfeiting the ruble or Mexican peso).
What is fascinating is that the General Accounting Office has reported that nearly two-thirds of the $380 billion of American currency in print circulates overseas, and the Treasury Department fears that if counterfeiting of our dollars expands much further, foreigners will lose confidence in them and stop hoarding them.
But why should we care whether people in other continents put American $100 bills in their mattresses, or use them as basic currency for their large transactions, as appears to be the case in Russia and other nations today?
The answer - we make a good profit on their willingness to take dollars overseas and keep them there.
Look at it this way - to get American $100 bills, foreigners have to sell us good and services that involve the use of their basic resources and labor.
What do we give them in return? Pretty pieces of paper with Ben Franklin's picture on them.
As long as they keep these pictures of Ben overseas, we never have to redeem them with our own our goods and services. So we get a free ride.
What we have to remember is that the C-note is basically just a piece of paper, even if we think it has great value. It probably costs about a cent or two to make.
Some older readers may remember that after World War II, currencies of nations like Italy, Japan, and many others were worth very little and certainly were not convertible into U.S. dollars.
Stories would appear of U.S. movie stars and other celebrities going to these countries and lighting their cigarettes with 100 lira notes and the like, with the implication being - "Look, the Italians are hungry and we waste money like that."
But in truth, all we did was burn paper. And Italy was better off, as it had less currency outstanding against available goods and thus faced less pressure for inflation.
You can see then why we are so happy to have the dollars we issue stay abroad. For as far as we are concerned it's the same as if the bills were being burned - unless they are brought back here later. This is why we must work to maintain the willingness of foreigners to acquire and hold these pictures of Ben Franklin, Ulysses S. Grant, etc.
The willingness of foreigners to hold our bank deposit dollars, which vastly exceed in volume our paper dollars outstanding, also is a great plus for the United States.
For again, countries like Japan and Germany received these dollars in exchange for goods and services.
And when they had collected hundreds of billions of them, they asked, "America, we have hundreds of billions of your dollars, what are you going to do about it?"
We replied, "We don't miss them. We can produce more."
Again this willingness to hold dollars was great for us, as the foreigners - finding no better alternative - used them to finance our budget deficits for us. It wasn't until foreigners stopped earning so many dollars and, at the same time, began seeing what the market would bear instead of holding the ones they did earn, that concerns about balancing the budget heightened.
So we can see why its so important to the Federal Reserve to maintain foreigners' confidence in our economy so they will continue hold our paper dollars and dollar-denominated bank deposits. For what gives the dollar strength is not gold, not silver, not any other precious metal. Rather it is the knowledge that our money managers are willing to fight to protect the dollar's worth in buying goods and services so that it will remain sought after by people both here and abroad.
Mr. Nadler is a contributing editor of the American Banker and professor of finance at Rutgers University Graduate School of Management.
