Odd Lots - Why Money Launderers Love $100 Bills

Episode Date: September 7, 2026

Hardly anyone nowadays seems to carry much cash, never mind carrying around a bunch of $100 bills. So why does the amount of physical cash in circulation — especially big denominations like the $100 bill — keep increasing? There's a pretty obvious answer. All those dollars are being laundered and used by criminal enterprises. In this episode, we speak with journalist Oliver Bullough, author of Everybody Loves Our Dollars: How Money Laundering Won, about this cash paradox. We discuss how cartels balance their books by trading drugs for farm equipment, the gigantic parallel financial system that undergirds global money laundering networks, and why money laundering resembles Renaissance-era banking.See omnystudio.com/listener for privacy information.

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Hello, OddLod's listeners. I'm Joe Wisenthall. And I'm Tracy Allaway. We're the hosts of the Odd Lodds podcast, and we've got something exciting for you. That's right. So one of the best parts of hosting our podcast is we get to actually meet and interact with our listeners. And we know we have some listeners over in Los Angeles. That's right. So if you're in L.A., we're going to be recording a live show, some live recordings at the Vermont Theater in Hollywood on September 17th. We have some really exciting guests lined up, have some really great conversations planned. So go ahead and get your tickets. You can find those over at Bloomberg.com forward slash odd lots, or click the link below in the show notes and come and say hi when you're there. Oh, and welcome to another episode of the Odd Lots podcast. I'm Tracy Allaway.

And I'm Joe Wisenthal. Joe, everything I know about cash came from that tour we took of the Chicago Fed's cash facilities. Oh, yeah. It was so fun. It's President Austin Goulsby. That was really fun. I'm trying to think. What do you remember? I remember just seeing lots and lots of cash, ink. I remember appreciating the smell of the cash. It has a very idiosyncratic smell. I remember the color of the cash, which you don't really notice all the different shades of dollar bills until you see them stacked up. Right. We just think of them as green. Yeah. But there's like pinks in there and oranges. Yeah, absolutely. 50 shades of green. And then one thing that I remember is Austin

actually telling us that 85% of the $2.4 trillion in circulation happens to be $100 bills. Do you remember that? Yeah. And this is one of those sort of like facts about the world that people seem to know, but don't really think through it. It just sort of comes up every once in a while. This phenomenon that, you know, by and large, like two things, I think people may know about the cash economy, which is by and large, people use less and less cash in their daily lives. That fact seems to have actually had no effect on the amount of cash in circulation. Right. It keeps growing. And then quite a bit of that cash and circulation is in relatively high denomination bills that are even used less than, say, the fives of the 20s.

Yeah, I don't know about you, but I do not walk around with a lot of $100 bills in my pocket. No, me neither. On the rare occasions, when I do go to a cash machine, I always choose 20s or even fives and tens, right? So the question is, what are people doing with all these $100 bills, right? And when we talked about it with Austin, he described it as a disconnect between the stats and the daily use of cash of most Americans. but I think there's kind of an obvious answer here, right? What are people doing with $100 bills? I have an answer. Because I can tell you the last time I walked around with a significant stack of $100 bills.

Okay. I was playing in a poker game in New York City. And it was not a regulated poker game. And I, like, didn't lose all my money that night. And so I walked home with a lot of $100 bills. So maybe that is a sort of... That's some good humble bragging, Joe, about winning at poker. I didn't win.

I said I didn't lose all my money. But maybe that's sort of a clue about the types of activities that might lend themselves to high denomination individual bills. Yeah. So this episode is perhaps poker adjacent. We're going to be talking about money laundering, which we've never done an episode specifically devoted to money laundering. And it is, in fact, like, a huge business. Some of the numbers you read about them and they're, like, staggering. And I almost, like, don't believe some of the numbers.

But when you figure out it's like, okay, drug. are probably a big deal. Fraud is probably a big deal. Crime is a big deal. People are trying to get their money out of countries that have various sort of rigid capital controls, China being an obvious example. You can see how it adds up. Yeah, absolutely. And of course, money laundering is kind of the thing that makes a lot of crime possible, right? A lot of people wouldn't be in the crime business if they couldn't actually use the money they're generating from it. And money laundering is the way they're able to do that. So I think it's a worthy subject to dive into. I really want to learn more about how it all works.

All right, let's do it. We do, in fact, have the perfect guest. We're going to be speaking with Oliver Bolo. He is a journalist and author of Everybody Loves Our Dollars. So, Oliver, thanks so much for coming on all thoughts. And thanks for having me on the show. I'm really pleased to be here. Talk to us about the scale of money laundering.

Because you sometimes hear these statistics thrown out, like, bigger than the entire GDP of Germany, certainly bigger than a lot of big tech companies and things. like that. How large are we talking about here? Well, it's worth saying in advance that obviously no one really knows. The criminals are not filing accurate tax returns. So there's a lot of supposition going on here. But the most widely used estimate is that we're talking about between 2 and 5% of global GDP. And since global GDP is approximately $100 trillion, that means, you know, between $2 and $5 trillion being laundered globally. And that's a pretty decent amount of money, you could build quite a lot of data centers with that. And that's growing all the time.

I like how we measure everything in data centers now. How many data centers can you build? Yeah, I mean, I don't know if the criminals are building a lot of data centers. I mean, they are choosing almost any avenue they can find to launder their money. So perhaps that's the new, new thing. But the old things are still very much current. We're talking about obviously cash money earlier. and although we like to focus on shiny things, crypto, for laundering money, I mean, criminals are pretty traditional in a lot of the ways they move their cash. So we are often talking about literal banknotes. Do you have a sense of how that two to five percent number is derived? Because yes, we've seen that stat, et cetera, but also, as you've said, no one is filing these

things in any sort of official manner. It's a lot of money. Do you have a sense of like why people think it's in that ballpark? That's a really good question, actually. It derives from an estimate given by Michelle Kandesu, who was the head of the International Monetary Fund back in the late 90s, a French, a central banker. And he came up with this idea in the late 90s that it was between 2 and 5% of global GDP, which was based on a couple of economists work at the time, trying to work out the size of the global economy.

And it was very much a guesstimate at the time. And it's been attacked from lots. of different directions, trying to work it out in a sort of a macro way, looking at it in micro way, trying to work at various guesses. And people do keep coming back to this kind of a range. So the estimate that tends to be given is, yeah, 2 to 5%, is the same estimate that was given in the late 90s, which is it's a kind of uncomfortable truth hidden in that estimate, which is that if the scale or the share of the global economy that is criminal is the same now as it was in the 1990s, it means that everything we've done to try and tackle money laundering, which has been an

awful lot since the late 90s has essentially failed to do anything except perhaps prevent the criminal economy from getting bigger. Criminals have been able to outmaneuver regulators and law enforcement agencies and governments attempts to limit them by a sort of ceaseless entrepreneurial nature ever since there have been attempts to stop them from laundering money. And the fact that their share of the global economy just grows alongside the global economy is proof of that. Yeah, the fact that it's growing in tandem with like broader economic growth. Absolutely. So, okay, what's going on with our efforts to actually tackle money laundering? Because I used to cover the banking industry. And one thing you would hear from banks all the time is how onerous KYC regulation, know your customer regulation

was, how terrible it was that they had to file thousands and thousands of like suspicious activity reports, lots and lots of complaints about everything they're doing to stamp out suspicious or illegal activity. But at the same time, per your commentary, it doesn't seem like it's actually been effective. It's obviously easy to dismiss what banks say is special pleading, but actually they do have a point. We have an incredibly intrusive and onerous system put in place to try and stop money laundering and terrorist financing, which was, I mean, it was created the first AML legislation. The sort of rather weirdly named Bank Secrecy Act was passed back in 1970 in the US,

and then it spread globally when it became clear that one country couldn't fight money laundering on its own because it was pretty easy to just fly your banknotes to the Bahamas, Cayman Islands or Panama. So it's pretty important to have their cooperation, and then everyone had to cooperate. So we ended up from the late 80s, thanks to an institution called the Financial Action Task Force, with a kind of global approach to tackling money laundering, which has become incredibly intrusive, incredibly expensive. The estimates from LexisNexis is that global compliance with AML legislation

costs something like $200 billion a year, which is a lot of money. I mean, if you look at what you could do with that money, if you weren't using it for this, that would be enough to solve world hunger and to provide clean water and sanitation to everyone on Earth with about $50 billion left over. So it's a huge amount of money,

is being spent on this issue. And a lot of that money is being spent by banks who are expected to check transactions to use ever more elaborate AI-powered compliance software, which they are doing. They are attempting to do the job being asked of them. They face very large fines if they don't do that job. So it's fairly easy to see why they're doing it. But it's not working. The system that we have is incredibly laborious, very bureaucratic. It generates, as you say, millions upon millions of suspicious activity reports every year, but it is signally failing to stop the money laundress who are always at least one step ahead. So obviously we really want to get into the details of the creative ways that criminals and so forth move money across borders, but just to sort of set

the scene a little bit. We started this conversation by talking about how much cash there is in circulation and the prevalence of high-denomination bills. We're also talking about all the suspicious sort of incident reports that banks file. Big picture, I sort of have two questions. One is, what is the general sense of the distribution? How much is this happening via cash and bearer instruments that are hard to track? And how much, you know, we see the headlines from time to time. A bank will get into really big trouble. HSBC got into trouble years ago. How much do we think is happening sort of inside regulated financial institutions that didn't identify the illegal movement of money. Obviously, it is happening via regulated financial institutions.

We know this because occasionally they get caught, whether that's Danskebank or Deutsche Bank, HSBC, whoever. But if you look at the scale of global cash smuggling and you compare that to the amounts that are even in these gigantic money laundering scams, which are accused of going through regulated financial institutions. It's just an absolutely different league. What Danske Bank was accused of moving, if I remember rightly, about 130 billion dollars over several years for suspicious Russian clients. Global cash smuggling is certainly in the hundreds of billions annually. Cash is a hugely significant tool for moving illicit wealth around the world. And even that is dwarfed by what we refer to as trade-based money laundering. It is essentially a way of moving

value around the world, not in the form of money at all, but in the form of stuff. If you are moving value out of China, it's far easier to do it in the form of essentially misinvoicing a shipment of manufactured goods or knock off designer clothes or whatever than it is to move it in the form of money at all. So there is a focus on the regulated sector banks in particular when we talk about money laundering for obvious reasons because it's sort of easy to look in a spreadsheet and see value moving around. But actually, it's a far bigger deal if you look at how money is moved in the form of cash and how money is moved in the form of stuff. And that form of money laundering, trade-based money laundering, is almost impossible to estimate. I mean, there is an institution

in Washington, a global financial integrity that estimates that that's about a trillion dollars a year is moved via trade-based money laundering. You know, we're talking about amounts of money being laundered outside the financial system that completely dwarfs what's happening within the financial system. Yeah, so one thing I learned from your book is there's a connection between drug money and I guess John Deere tractors and other equipment with the Mexican cartels, like essentially trading fentanyl for farming equipment. Can you walk us through that particular example? How does this actually work? Well, you can see this. It's just logical that if there is, let's say, $50 billion worth of cocaine arriving in the United States every year. I've just invented that number, but it's a nice

round number, so let's say it is that. Then there must be $50 billion of something else flowing in the opposite direction for the books of the cartels to balance. They're not in this for charitable reasons. They like to make a living out of moving drugs, so that that follows. Now, obviously, a significant amount of that is in the form of money. By best estimates, something like $25 billion worth of cash is smuggled into Mexico every year, but there's a significant hole in the books that needs to be filled with something. And it has been a traditional that essentially a way of meeting that whole in the books is just by exporting stuff. What does America make particularly well? Well, I mean, Cat's been attractors, John DeA tractors. That's useful. Everyone wants those. You can send them

South. You can send all kinds of wonderful American financial products. We see this in Europe, to a greater degree with luxury goods. There is a huge demand in China for European luxury goods, whether that's Gucci handbags or Berberi Anorex or whatever. And so there is a lot of, is a giant off the books, a sort of grey market of designer goods which flow out of Europe into China. And in return, we receive criminal goods or drugs in return. So essentially anything that is being made well in one place, whether that's caterpillar tractors or Gucci handbags, couldn't just be as useful a form of money as anything else. I mean, you need to just think about criminals as being endlessly looking for ways of finding concentrated value in a way that isn't going to be checked so they

can move it around. Obviously, the most useful example of that at all would be an expensive watch. If you buy a million dollar watch, you can fly in from one country to another and sell it at the other end. No one's going to check it when you fly across the world, sell it at the other end, and you've just moved a million dollars without having to move a million dollars. It's as simple as that, and it happens all the time, absolutely everywhere. It is kind of crazy that you have to declare like more than $10,000 in cash at the airport, but you could easily have a $1 million watch on your wrist. No one would say anything. No one would think anything of that. Talk to us a little bit more about, all right, so Tracy asked about the Mexican trade of cocaine for tractors, which sounds

reasonable enough. Talk to us about like how money is moved out of China. The popular ways to move money out of China at scale. You mentioned sort of watch and handbags, but what is the shape of this trade? The basis of the trade is that there is a restriction. on moving money out of China of $50,000 per person per year. Now, $50,000 might sound like quite a lot to the average Chinese person, but to a wealthy Chinese person, that's not nearly enough. So there is a constant demand from wealthy Chinese people outside China for money that they can't move in a formal way.

And so there is a huge appetite, a huge demand for cash for some form of money. And now what they really need is a supply of money, which they can meet coming in the opposite direction, and then brokers can put those two together. And fortunately, in the West, we have created that supply of money by making drugs illegal. So there is a gigantic supply of cash, which is being generated in an illegal way. And the Chinese money laundering networks, which have become incredibly sophisticated in the last, particularly the last 15 years, last 10 years, all over the world,

essentially have created a business model of putting together this demand for cash that comes from wealthy Chinese people outside China and the supply of cash that comes from the cartels or other drugs gangs. In Europe, it's often the Albanians or the endrangata in Italy, in the US, obviously, it would be more than the Mexicans or the Colombians. And they put these two together, the Chinese demand and the cartels supply. This is often called the Vancouver model, slightly unfairly, because it doesn't only happen in Vancouver, but it was first identified in Vancouver where you would get this totally baffled police officers watching this phenomenon of wealthy Chinese people being given carrier bags full of banknotes outside casinos, going into the casinos, and then just

losing all the money. Because laundering money varsinos is something that's been happening ever since the mob took over Las Vegas. It's a super easy way of laundering money. You bet a little bit, you cash in your chips, then you sell the chips and you just have clean money. And so that's very tightly controlled, but they couldn't really understand what was happening because that wasn't what was happening in Vancouver. They were just taking in money and then losing it. But if you zoomed out, you would see that this one transaction of handing over the cash to a Chinese gambler was just a small fraction of what was really happening, in that you had a debt being created, essentially, from the Chinese gambler to the drugs gang, which would be being repaid by supplying drugs to the drugs gang that they were able to

sell, to generate more cash, to hand it over to generate more gambling. And so you end up with essentially a circular transaction where money would change hand in China between a criminal gang and a wealthy Chinese person. Money would change hands in Canada between a drugs gang, giving it to a Chinese person. And then essentially that would all net out by the movement of drugs between borders, which is how the value actually transfers. And you see this now, I mean, that's only like a bilateral trade, as it were, between Vancouver and China, but you see this now globally. So it might be the movement of luxury goods from Europe, the UK or France to China, then the movement of some kind of illicit goods or even totally normal goods from China to South America. Then the

movement of cocaine from South America to Europe, which would essentially complete this triangular trade. this happens globally on a truly colossal scale. And this is essentially how money is moved. You don't need to move money internationally because that's where the checks are on transactions. You just move value internationally in a form of luxury goods, cocaine or illicit goods of whatever kind. And so essentially, wherever you get criminality, there is a demand for money laundering because this is how you realize and protect your criminal profits. And this essentially is a gigantic, parallel financial system. And what I find particularly pleasing about this, of looking at this, is this is pleasing is maybe not the word, but I'm kind of a nerd. Nelectorly satisfying.

Intellectually satisfying is this is exactly how the Medici's used to bank in the late medieval early Renaissance Florence, is that they were moving wealth. They had an incredibly sophisticated system whereby you could deposit money at a branch of their bank in Venice or Florence, and then you could collect that same money in Bruges or in London, and the other side of the Alps and the other end of Europe. Essentially, as soon as you could get there, the money was available for you to pick up. And, you know, how did they move the money? They obviously weren't moving bullion from Italy to Belgium or Italy to the UK

for the same reason that ordinary people would want to do that. It wasn't safe. So they were just moving trade, so silk going north or spices, wool coming south, and then we're just hiding the movement of cash in the paperwork. And, you know, in the years after World War II, some academics, found their, what they were called, their secret books in the state archive in Florence. And you could see how they were doing this. Essentially, they were providing banking services to politicians, to leading cardinals, other people in the church in exactly the same way that banks might provide

secret services now to politicians or any powerful people. And we're just hiding the transactions in the huge amount of paperwork generated by their trading activity. And this is basically now what the Chinese money laundering networks do. And you can tell that they're important. This is one of these weird things in money laundering studies, which is a very niche area, which is mainly just consists of me and about three other guys. But the money laundering studies, it is infested with acronyms, AML, anti-money laundering, CFT, counterfinance of terrorism. But if it's a really important one, it's a four-letter acronym, not a three-letter one. So the fact that Chinese money laundering networks are CMLNs, it's a four-letter acronym. You know that that's a big deal.

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That's not edgy. What are you talking? This is a place David Gurra has never shopped in his life. Hot topic. The Bloomberg This Weekend podcast. Subscribe today on Apple, Spotify, or wherever you listen. There does seem to be something very traditionalist about, I guess, trade-based money laundering. But on a related note, can you talk to us about the carousel fraud that was taking place going in and out of the UK?

And then when the rules were finally changed, I think it just shifted. over to Europe, which kind of gets at the point that it seems very hard to fix what is like a jurisdictional arbitrage issue unless you have some sort of harmonization across different countries. Yeah, the carousel fraud is one of these absolutely fascinating crimes, which it's so complicated and so extraordinary that you think that if the criminals have designed it, if instead that they decided to set themselves to solving climate change or anything, then that problem would be solved. kind of elaborate nature of the transactions they were doing. It grows out of a floor in the way that

value-added tax is designed in the European Union. Back then, the UK was in the European Union. And essentially, the way it works is that if you're moving goods within a country, you charge value-added tax. But if you move it between countries, you don't. So that difference had to be that way, because otherwise you would end up with the UK tax authority having to trust the French tax authority, and that's obviously never going to happen. So you had to have that zero-rated transaction across borders, which just meant that you could cycle things in and out of one country and another country and essentially claim VAT that you'd never actually paid. And it went around and round and around. And that's why it's called Carouselford. It went around like a merry

go round. And it became, it started off as just this very simple transactions. And then as the tax authorities picked up on that, they became more and more complicated with different chains of shell companies going in all directions and incredibly complicated. But yeah, like you say, what's really interesting about it is the UK actually got very good at tackling this. And I actually use it in the book as an example of how to fight financial crime. It was a really fully multi-agency approach, like not just leaving it to the banks like we do with money laundering, but really fighting it with everything that the state had. And actually got very good at tackling this, but it just crossed into the rest of Europe, where now it's a 50 billion euro a year problem, carousel fraud.

And it's so elaborate and so well developed that you're talking about something that spreads from Lithuania down to Portugal, from Greece to Sweden. Can you just explain the mechanics? I get that it's elaborate, but for the listeners, like, what is the mechanism? This may be stretching the tolerance even off the odd lots to really explain. So it's called, so Carousel Fraud or Missing Trader Inter-Community Fraud, MTIC, which is a four-letter acronym, so you can tell it's a big deal. But basically, what you have is if you import a product, let's say, from Ireland, if you're in the UK, and then you don't pay VAT on that trade because you've imported it, right? So no tax is paid. You then sell it to another shell company, which is controlled by you, but it looks like a different company in the UK.

You charge VAT on that trade. So you add 20% or whatever the percentage is of VAT on that trade. And then you export the good back to Ireland. Now, if the second company exports the good, because they've exported it, they can claim from the treasury, they can claim the 20% back again. They can claim that 20% because that's what they get because they've exported the good. So essentially you export it, but without ever having paid it in the first place, you're essentially claiming back that you never paid. So it's called missing trader into community fraud because the trader that is supposed to pay

the VAT to the Treasury just vanishes. They go missing and they never pay it. So you are claiming back attacks that has never been paid, which has this amazing ability, unlike all forms of, almost all other forms of organised crime that I know of, essentially there is no limit to the amount of money that a criminal gang can make out of this. So there is no reason for criminal gangs to compete. The more they collaborate with each other, the more elaborate the schemes can get and the more money they can claim. So you ended up with this essentially, it seems to have grown, to been discovered by accident by mobile phone vendors in the 1990s, who then realized that there was this unbelievable golden goose that they could just keep milking, if that's what you do with geese, keep egging for golden eggs consistently.

And they kept going for absolutely ages. I mean, you know, some of the carousel fraudsters became on the British rich list of the richest people in the country because they made so much money out of it. But essentially that the flaw in it is at the fact that you can import something without paying VAT and then you can claim the VAT back when you export it. And provided that there is an extra stage in that transaction, the missing trader, the person who is supposed to pay the VAT never pays it to the Treasury, the person who claims it back, claims it back. And therefore you've essentially conjured up 20% of the value of a shipment from thin air.

And this is why it became so expensive to the Treasury. It is an incredibly elegant form of fraud. and talking to some of the insurance adjusters who were involved in trying to work out what on earth was going on. They described this with the sort of wonder that a physicist might talk about what's happening in CERN. Because I'm talking about only two shell companies,

one selling it to another, then exports it. In reality, you're talking about thousands of shell companies, moving goods backwards and forwards, up and down, and then when it all nets out, mysteriously 20% of nothing has been created and the rest of us are on the hook for it. It is a gorgeous crime. if you like crime, but it was incredibly troubling and very, very expensive and really made some

bad people very wealthy. So obviously we've touched on a number of different, I guess, vehicles for how money gets laundered. What is the official reason for why, given everything that we know, governments continue to produce lots of cash and particularly high-denomination units of currency? Yeah, I am fascinated by this. This is called the paradox of banknotes, what you described at the beginning. It was first identified formerly by Andrew Bailey, now the governor of the Bank of England, back then the chief cashier, so in charge of physical coins and notes back in 2009. And it is this very strange phenomenon whereby cash is in analog technology like videotapes or films and cameras that is being out-competed by digital

means of payment. Really a very small proportion of transactions and now use cash. I think it's like something like 9% now in the UK, maybe. 13% in the US. It's very few. So there is very little demand for cash from society. So you would expect, therefore, the supply of cash to be collapsing. And yet at the same time that the demand is very low, for some reason, supply is very, very high and getting higher all the time. Consistently, almost everywhere, the amount of cash in circulation is hitting record highs in the US. It's almost $2.5 trillion US dollars in circulation. I was hoping it would hit $2.5 trillion in circulation. I was hoping it would hit 2.5 trillion in time for the 250th anniversary because it would have had a sort of nerdy

appropriateness, but it didn't quite get there. But still, it's not far off in the Eurozone. It's something like 1.6 trillion euros. In the UK, it's about £100 billion. So, you know, huge quantities of banknotes are being printed and yet very few are being used. And there have been a number of proposals of suggested explanations for why this is happening. Andrew Bailey back in 2009 and suggested it could be because of low inflation, that there was no real opportunity cost of holding banknotes, because why bother putting them in the bank when interest rates are so low? Another explanation was there were just lots of ATMs, so maybe the banknotes were just, as it were, piling up in the ATMs, and that's where they were.

Another explanation was trust in financial institutions was very low because it was immediately after the great financial crisis. Yeah, I think we can say, certainly the number of ATMs is lower now than it was back then, and inflation has obviously gone up again, and you hope that the trust in financial institutions has at least partly returned in the last couple of decades. And yet the phenomenon has continued. In fact, it's accelerated, if anything, since then, the value of pounds in circulation, for example,

has doubled since he made that speech. So, you know, there is clearly another reason for it. And central bankers tend to now just fall back on saying that it's a store of value. There are two basic uses for money, really. It's either a medium of exchange or it's a store of value. Those are the two options. And since it's not being used as a medium of exchange,

then they said, well, it's presumably being used as a store of value, and that's what they tend to come up with. And that's really frustrating, because you can see from the surveys that central banks do that it isn't being used as a store of value. The average American adult has, I think, something like $430 odd dollars, either on their person or at home at any one time. And yet there's more than $7,000 out there for every man, woman and child in the United States. It's an order of magnitude higher than the amount that's being used as a store of value. And yet there is no attempt to... really by central bankers to explain why that's happening. You know, what's going on? Where are all the banknotes?

I mean, they do efforts to try and work out how many of them are outside the country. There's an economist at the Fed called Ruth Judson, who's done some really interesting work on this and then another colleague at the European Central Bank. And the European Central Bank reckons about half of Euro banknotes are outside the Eurozone. The Fed reckons sort of something like 65% maybe of dollar bank notes are outside the United States. But that's just a kind of a way of kicking the problem one step further. If it's a store of value outside the United States, it still must be being used for something. And yet, what is it? Well, essentially, we don't know. They never really, the central bank has certainly never really answered that question of where are all this astonishing quantity of banknotes at

their printing. And it is a really interesting puzzle. I mean, if you imagine that this was not banknotes that we're talking about, but was VHS cassettes, that Netflix. That Netflix, has boomed, everyone's watching Disney Plus, and yet somehow VHS cassette production is hitting record highs year after year after year. I think we'd be really interested in where they were going. Who's watching all these things? And yet just because it's banknotes, everyone's like, oh, well, it's a store of value. Forget about it. Can you talk to us about seniorage? So this is one of these concepts where, like, it comes up occasionally, and I sort of nod my head and I go, yes, of course central banks make money by distributing dollars. But I don't actually know how it works.

Well, so seigneurage is one of these really ancient, wonderful concepts that, I mean, so you can tell it's old because we use an actually Norman French word for it. Senorage means that which pertains to the seigneur or the lord, which essentially is that making money, having a monopoly on the production of money is a very profitable thing to have, which is why almost as soon as any warlord kind of took over a patch of territory and declared himself to be king, one of the first things they did was have a monopoly on issuing money. And so there's quite a lot of warlords in Anglo-Saxon. England that we only know the name of because we found a few coins with their names on. Essentially, in those days, it was that if you wanted to have your money coins, you had to bring it to the mint where the king would put his face on it and take a little bit for his trouble. That's the origin of the term seigneurage. But in the modern sense, obviously we don't use gold so much anymore. It's just paper. In the modern term, it's the profit that is made from issuing paper money. And there are two ways of looking at this. There's a sort of simple but wrong way and a right but

complicated way. So the simple but wrong way of looking at this is that it's very cheap to print money. It costs about nine cents to print a hundred dollar bill. You know, there's whatever, 20, 20 billion US dollar bills out there somewhere. So, you know, if you think about that, each one costs nine cents to print, you can see that there's a 99.9.9% margin on producing them. That's a very profitable thing. That's your signorage right there, the fact that you're making $99.91 cents every time you print a hundred dollar bill. So that's the simple but wrong way of looking at it, and central bankers will tell you this is wrong. Because actually, a hundred dollar bill, if you take a hundred dollar bill out the bank, you're not actually buying that $100 bill,

because you can sell it back at any time for the same amount that you bought it for. So actually, it's an interest-free loan to the government is what it really is. And this is where we start getting towards very much the end of my maths, and I'm hoping that you guys will probably correct me at this point. So there's two and a half trillion US dollars out there somewhere. That's an interest-free loan to the US government broadly understood of two and a half trillion dollars. Now, I think the US government debt, outstanding government debt is something like 40, almost 40 trillion dollars now. So two and and a half trillion dollars on top of that is like an additional, what is that sort of six percent or something of US government debt, which the US government isn't having to pay any interest on.

That's quite a significant saving for the US government not to have to pay that money. I think that, as I remember rightly from the last thing I saw, I think that, that debt servicing now is something about 19% of the federal budget. If you had to pay interest on that extra $2.5 trillion, then that's probably another percentage point on top of that. So, you know, that's quite a decent amount of money which the US government saves, essentially by having a chunk of its debt in the form of bearer instruments that don't pay interest. So that's, as it were, the right but complicated way of looking at Sanyar Ridge. But either way that you look at it, Sanyarage is a very profitable thing to have, which is why

governments tend to like having a monopoly on the issuing of money because it's essentially either it's just straightforwardly profitable selling bits of paper or it's a very cheap way of raising a loan. Right. So just to repeat Joe's question then, politically, who is actually blocking getting rid of, for instance, $100 bills? Would it be central banks and the Treasury protecting signorage or is it simple inertia or is it maybe tax avoidant industries, the powerful nail salon and, I don't know, psychic reader in New York lobby or something like that? I think broadly speaking, this doesn't come up. The system, from the perspective of the European Central Bank or the Fed or the Bank of England or the Bank of Canada, the system is working fine. There's lots and lots of demand for their products. Why would you want to get rid of them?

If you look at it more broadly and you work out that essentially the products are enabling crime on a geopolitical scale, then you would say, well, actually the harm that's being caused far outweighs the profits that's coming from the same Euro, which we should do something about this. But, you know, essentially these are different bits of government and they don't necessarily talk to each other. There have been occasions in the past when governments have got rid of big bills to try and reduce criminality or terrorism. After the attacks on Paris in 2016, the Europeans announced that they weren't going to produce. They used to have a 500 euro bill, which was referred to colloquially as the bin Laden because everyone had heard of it, but no one of the time one of

your banknotes has been called the bin Laden, you know that you're in a degree of trouble. That's not a, that's not a good nickname to have. That's the first hint. Singapore used to have a big bill as well, I think, a 10,000 euro bill, which they, it's a thousand dollar bill, which they got rid of. But broadly speaking, you've got a kind of collective action problem, which is that if the US stops producing its $100 bill, and I wish it would. I don't think that there is anyone really who would be inconvenienced by the lack of $100 bills except the bad guys. But, music video producers. Well, yeah, music video producers.

I mean, I suppose what would hip-hop artists wave around in their music videos? But leaving that aside, the Europeans would still be producing 100 euro and 200 euro banknotes. And then the Americans would then essentially lose out on the senior age to the Europeans. And the criminal economy would get no smaller because they would just switch to using euros instead. And vice versa. There are enough central banks producing big bills, whether that's a few. 50-pound note or a thousand franc note or 200 euros, a $100 bill, that if one of them went out the game, it essentially wouldn't make that much difference to the criminals, but would make a

substantial difference to their own income from this. So what you need is an international agreement that everyone could get together and say, we're not going to do this. And that's what has been eluding humanity, well, in this as in so many other ways, when it comes to trying to tackle financial crime. Because if you are the person jurisdiction that is enabling financial crime, is actually quite profitable for you personally. The city of London has been doing quite well out of this for decades. And most of the harm is then spread elsewhere in the world. So you get the profit and other people get the harm.

And the fact that the $100 bills are the favored tool of the cartels in Colombia or in Mexico is very bad for Colombia and Mexico, but it's also quite profitable for the United States. So that's the essential challenge is trying to persuade people that they all need to act together. And that's something that, well, no one's really tried it, but even the vague suggestions. Some economists have talked about this in the past. Kenneth Rogoff has talked about this at length and tried to get interest for this idea. He's really come up against the challenge of trying to get everyone in a room together to agree. Get Bell Pure Fiber Internet with Crave, Netflix and Disney Plus from $94 a month.

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the chinese currency the highest denomination note there is 100 rmb so only about 15 dollars also every one of their bills is the exact same design basically it's the mao photo whereas which i think is kind of interesting you look around it seems like they usually switch it up etc one thing is the one thing is I am curious about, was crypto ever an important part of this story? I remember back then people like, oh, it's going to be used for money laundering and stuff. And I thought that the crypto people made a good point. It's like, look at the banks and the cash you're producing. That's where most of the action is happening. Obviously, crypto isn't really like what it was, at least on a few years ago, et cetera. But during that period, was it ever, did it ever really move the dial as a vehicle?

I mean, crypto is huge for money laundering. Specifically, there are many cryptos. It's not just one thing. Specifically, we're really talking about stable coins when we talk about crypto being big in money laundering. I was talking earlier about trade-based money laundering and how essentially you can move value via moving stuff, whether that's Caterpillar, Earth-moving equipment or handbags or drugs or whatever around the world. And you move value in that shape like the Medici's used to. Crypto allows you to do that instantaneously.

So the really entrepreneurial money laundering gangs now tend, and this is the Russian the Chinese, the Iranians do this too. They combine cash and crypto. So cash works at a street level and then you collect the cash and you exchange it for crypto. And then the crypto is useful for moving your wealth around the world for buying product from Colombia or elsewhere. So the two were not exclusive. In fact, they supercharge each other. Criminals have always liked to stack different techniques on top of each other. And so yeah, cash remains the most useful criminal tool at a street level. But it's bulky, it's not secure, it's kind of annoying and smelly, it's annoying to count and so on. So if you can get away from using that as quickly as possible in order to move it around the world,

that's where crypto comes in and is super useful. The Russians have been created their own cryptocurrency, A7, A5, although it's in a little bit of trouble at the moment, essentially as a way of allowing themselves to do this outside of the Western controlled stable coins. But there are other Western controlled stable coins are available, which I'm sure. you have spoken about on the podcast. In fact, I know you have. You know, you mentioned earlier this idea that if the US got rid of $100 bills, then maybe everyone would just start using 200 euro bills or something like that. I'm curious in your discussions, you must have had some with money launders or people who investigate money laundering. Do you hear a lot about,

I'm trying to think what to say, fraudsters, thinking about the actual like value of the currency or making currency hedging decisions. So, like, I don't want dollars because I think the dollar is going to go down. I'm going to move into euros instead. Or is it just purely about the use case and some broader utilitarian diversification kind of thing? I would love that if there was. I mean, I used to live in Russia. And it's how I got into writing about financial crime was living in Russia.

I mean, good thing about working in Russia as a journalist is you don't really need to look out financial crime. It tends to come and find you. And it was that there was a really deep awareness of the relative strengths of the euro and the dollar. And this was a time when the euro was looking very strong. And so there was a movement towards euros by ordinary Russians, but you can't get away from the fact that the dollar is just much more liquid a market. It's much more widely accepted. And it was interesting. It actually used to get different exchange rates for different kinds of dollars.

When I first lived in Russia, I was paid in cash dollars. And I would always try and be paid in $100 bills because I knew I could get more rubles for $100 bill than I could for a $20 because there's that demand for hundreds. So, no, I mean, dollars were that the utility of dollars was more about the universal application of them, the fact they're accepted everywhere. And because as you say, there is a 200 euro bank note. You can move twice the value in the same space with euros as you can with dollars. but because the dollar has got this kind of first mover advantage and it's globally accepted, the dollar remains the lingua franca of global criminality, the $100 bill, just because it is a much deeper, more liquid market, which has an interesting,

obviously an interesting parallel to the role of the dollar as a global currency in the illicit economy, which is that it has all of the instruments built up around it. Everyone trusts it, everyone knows it. And it is very difficult to dislodge that once it's been established. Just last question for me. You mentioned the rise of some of these acts in the 70s and 80s to clamp down on money laundering, et cetera. Has the political climate change? What was the political climate then such that there was an inspiration to really try to move on this? And would you just say we're in an environment today where there is just, it's just not most countries don't care very much and they have other things to worry about. there isn't really the appetite to do another push, even if the reporting says there's

quite a bit of it out there. I'm really glad you asked that because it gives me the opportunity to bring up my personal anti-money laundering hero, who's a guy called Wright Patman, who was a congressman from Northeastern Texas, Texas, who represented Texarkana in the area around there. From the 1998 up to 1974, he was one of those imperfect but amazing Southern Democrats. He was, by Southern Democrat standards, a really good guy, but not necessarily. a really good guy by everyone's standards today. But he did have a very healthy distrust of monopoly power, financial institutions, which grew out of this sort of what was called the populist

movement in Texas and the South and the Midwest in the late 19th century. And he really, as chair of the House Banking Committee in the 1960s, he pushed through some really interesting committee hearings and innovations. And so his, the anti-money laundering legislation, which called the Bank Secrecy Act, even though that's not its proper name, grew out of his person. kind of obsession with the wrongdoing of the financial institutions. And because of the kind of way that Congress was very hierarchical back then, if what the Banking Committee did, then Congress tended to go along with, he had a huge amount of personal power and prestige that allowed him to do that. And I'd not sure that that would be replicatable today. The role that he played, though,

I think in a way is sort of, in some ways you could see similarities with, say, the role that Elizabeth Warren played with consumer finance after the great financial crisis. He managed to pushed through some changes and Speer had that. So there was an opportunity back then with the growth of offshore finance in the 1960s and he took that opportunity to bring the Bank Secrecy Act onto the books. So it is difficult to see who would fill the position that he filled now. I mean, that kind of politician isn't really present, but who knows? Things move fast. And I personally would like to see politicians engaging with the minutiae of money laundering in the same way that he did and trying not to just as it were punt responsibility onto the bank.

and say that they just need to produce another 100,000 suspicious transaction reports and instead say, well, actually, what does money laundering really look like? How do we tackle money laundering using crypto? How do we tackle money laundering using handbags or earth-moving equipment? What is actually going on? What's really driving this? Because we have a status quo that is incredibly expensive, very intrusive. We haven't talked about debanking.

But that is a serious issue, both in politics, but I think more broadly, globally, that affects hundreds of thousands of people, mostly Muslims, but others too, as a really grotesque side effect of anti-money laundering and anti-terrorist financing restrictions. It's very expensive and it really doesn't work. So we're putting a lot of expense on financial institutions, and therefore on ourselves, and not really inconvenience in criminals to any meaningful extent. And one of the reasons why we're not inconvenience to them is because while governments are putting these very expensive regulations onto financial institutions,

they are simultaneously printing essentially limitless quantities of banknotes that are allowing criminals to evade those same restrictions by just using cash. So it is an incredibly frustrating situation to look at. And to be honest, it just makes me furious most of the time. How would you actually change the incentive structure for banks? I'm thinking of some poor compliance officer sitting in a basement somewhere and he's filing thousands of suspicious activity reports, knowing that they're probably going to go into like some black hole that no one is ever going to read. And at the same time, it's not like the bank is getting rewarded for filing all of those. It's all downside, right? It's if you miss something and you get caught, then you're in

trouble. So it feels like something could be improved on that side of things. The original idea with suspicious activity reports, which grew out of the creation of the Financial Action Task Force at the Paris G7 in 1989. The original idea would they would be a sort of real-time intelligence for law enforcement agencies, that they would receive these reports that would allow them to essentially see money laundering as it was happening. And for that to work, you need to have enough people to read the report. You need to have essentially effective software systems that can take in the reports and kind of triage them to the places where they need to go. And that's what we don't have, that there has been

this demand on financial institutions to hire tens of thousands of compliance officers who sit there, bashing out reports for false negatives endlessly or false positives, and it's just incredibly laborious, bureaucratic and tiresome work. But at the same time, most countries don't actually, no countries really resource their law enforcement agencies sufficiently to actually read the reports that are being produced. So you have, like you say, huge number of reports that are just going into essentially a black hole where they sit there and maybe they'll be looked at in the future and maybe they won't. And the downside of getting it wrong for a fact. financial institution is a billion dollar, a billion dollar plus fine. And the doubt in the plus side of

getting it right is kind of non-existent. So in terms of changing the incentives, it would be far better to have fewer suspicious activity reports that were actually being read. And then you could have a system where financial criminals were actually being prosecuted and you would get a sort of a kind of feedback loop that that would then restrict the ability of their financial criminals to move their money because the whole idea of an anti-money laundering system is to try and take the profit out of financial crime or any acquisitive crime. That's what they're trying to do is to make it expensive to launder money. That's what we're failing to do at the moment. So anything that can take away criminals money and essentially take away their ability to move it so easily around the world,

that would essentially be the purpose and that is supposedly the purpose of the system that we have. Instead, we have a system that powers a huge amount of paperwork on financial institutions and a huge amount of expense and occasionally fines them for their trouble, but doesn't really do anything to stop financial crime. And that's kind of, as we say in Britain, ass backwards. All right. I think that's a good place to end it. Oliver Bolo, thank you so much for coming on all thoughts. Thanks for having me on the show. Thank you, Oliver. That was great. So, Joe, that was a fun conversation. Yeah, I love reading about the index.

intricacies of all these details and the complexity and how far. It's a lot of creativity and crime. Extraordinary amount of creativity. And it's like, okay, you come up with one idea where you can sort of, it's like they found a free money glitch in the tax system where you import something, have one transaction, then claim the refund, et cetera. And then it's like finding these ways to do it across thousands and thousands of companies or fake companies, whatever it is.

It's very, oh, it's very impressive to me. With Carousel fraud, though, I keep thinking like, okay, sure, it makes you rich, right? Yeah. But your job is basically filing a bunch of paperwork and incorporating a bunch of shell companies, which sounds really, really boring. You think the problem is like, it makes you rich, but it provides you no meaning in life. Yeah, I mean, I think like, why not just start a business, right?

Do something interesting. Don't just make money by, like, creating shell companies. I don't know. I think people can find ways to enjoy themselves with just lots and lots of free money. You know, it's interesting. I've thought about this before when he was talking about. about the way criminals, as he called it, stack cash in crypto. And something I've thought about and I think there's a lot, there's actually sort of like common, even when he described a sort of like

classically Medici style banking system or whatever, how many transactions that we think of as like being somewhat bilateral are actually like very multi-step. So let's say you wanted to sell me a painting and I was like, oh, I'll pay it for you in Bitcoin. Or like, I don't already see that happening, but it's like I want to I would have to like that would be three transactions because there would be I would be purchasing Bitcoin from some entity yeah the bit one Bitcoin exchange would then like move it to your wallet and then presumably you don't want to hold a lot of Bitcoin you so then you sell the Bitcoin for cash so it looks like oh I'm going to pay you in Bitcoin is like really three three distinct movements and I think that a lot of these things that he describes how can you deposit money in Rome and then withdraw it as soon as you get there in London is this nature of the fact that a lot of times what looks like a transaction is really like this big multi-leg transaction that can sort of be decomposed and rearrange like Lego blocks in multiple ways. Yeah, which means there are all these little like vulnerabilities and steps that you can end up exploiting. Well, also on the crypto thing, it was interesting to hear that money laundering is predominantly about stable coins now.

Yeah, I was surprised. And that kind of gets back to the seigneurage point, which is if you think of stable coins as something that nowadays, finances U.S. government debt because a lot of the money goes into U.S. Treasuries, then you're back to this idea that, well, maybe people aren't particularly incentivized to crack down on what's essentially an interest-free, well, not in the case of Treasury, but alone to the U.S. government. It's also interesting just generally that like whenever you're talking about money laundering or crime, you use a metric that is very rarely ever discussed in economics, which is dollar

value per unit of spatial volume, right? Because that's true. That is a rare metric. But that's what we're talking about. Like, if it's like, why is a Rolex a useful vehicle, it's because a high dollar value at a small spatial volume. And so, like, what is the $200 bill or $100 bill on the Rolex and other things have in common? The opposite of it would be like, I don't know, a giant couch or something like that. It's probably like a pretty inefficient way to do it. There's a business opportunity for someone to create like lots of tiny, tiny, really valuable things, which I think gets us back to the beginning of money itself. We get it back to the very beginning, jewels and all that stuff. Yeah, exactly. Shall we leave it there? Let's leave it there. This has been another episode of the

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