TYVM for this excellent article.
Now to my questions.
Let’s suppose that M1 is under-reported. Would real wealth then be higher or lower? How does the Treasury Department account for the difference between dollars issued and dollars destroyed when an old currency series is taken out of circulation? Are these differences published? What I’m trying to get at is the magnitude of cash being hoarded such that it is essentially uncirculated and what sort of risk this could pose for our financial system.
There are probably a few hundred billion in US dollars in currency form circulating abroad, in Russia, Latin America, eastern Europe, etc. They are valued by people operating below the legal radar or in countries with weak currencies or primitive banking systems, as a medium of exchange that will more or less hold its value (compared to soft currency alternatives, I mean) and above all that will be accepted anywhere as money.
That circulation effectively earns the Fed a modest income, because issuing it funded the purchase of some bonds originally, which pay it interest. It doesn't have to pay any interest on their being out there. If they were all presented to buy US exports, they might force our savings rate higher momentarily, but only by providing us extra business at the same time. Unlikely anyway, and no big deal.