National Data | Looking For (Illegal) Immigrants? Follow The Cash.
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August 20, 2007, 05:00 AM
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Most Americans carry less cash and make greater use of debit and credit cards today than a decade ago. Electronic transactions are faster, safer, and offer goodies like percentage credits and bonus miles. They`re also cheaper. Digital money doesn`t have to printed, guarded, trucked, or counted.

But, unexpectedly, the trend to a cashless society appears to have been reversed. In Against the tide –Currency use among Latin American Immigrants in Chicago, [PDF] three Federal Reserve economists report that domestic holdings of cash as a percent of GDP, after declining steadily from 1965 to1995, has increased substantially since then.

One denomination in particular—the $100 bill—is leading the reversion to cash. Since 1995 the value of $100 bills in circulation has doubled.

Latin American immigrants are fueling most of the demand for the big bills.

To establish the link between immigration and cash the economists correlated currency disbursements with the proportion of immigrants (both from Latin America and from other regions) by zip codes in the Chicago metro area. Among the 175 zip codes surveyed, the Hispanic immigrant population share ranged from less than one percent to 49 percent. Per capita holdings of $100 bills ranged from zero to a high of $2,194. So the number of $100 bills per capita held in a neighborhood is positively correlated to the percentage of a neighborhood`s population from Latin America. The correlation coefficient implies that each 1 percent rise in a neighborhood`s Hispanic immigrant population share increases the number of $100 bills by 4.7 percent.

The vast majority of ATMs dispense only $20s.  So it`s really remarkable that Latin American immigrants hold so much of their cash in $100s.

For immigrants from regions other than Latin America, the $100 bill correlation is negative. These individuals are, on average, more educated and earn more than their Hispanic counterparts. They speak better English ("though by a very slim margin," according to the Fed economists.)

More importantly, they are less likely than immigrants from Latin America to have no bank account: 

No bank; no paper trail. Why?

(Percent of unbanked in the U.S., 2000)









Other Latin American














Source: U.S. Census Bureau; 2000 Survey of Income and Program Participation.

(As reported in Carrie Jankowski, et al., "Against the Tide—Currency use among Latin American immigrants in Chicago," Economic Perspectives, Federal Reserve Bank of Chicago, 2Q 2007. PDF )

A surprisingly large 17 percent of households headed by U.S.-born persons do not have a checking account. For them the most commonly reported reasons are 1) they write too few checks to make it worthwhile (28 percent), 2) don`t like dealing with banks (23 percent), 3) have insufficient funds (14 percent), or 4) find the service charges too high (12 percent).

Hispanic immigrants have other issues. Illegal aliens are reluctant to reveal their status to a bank, even though the U.S. Treasury now gives banks leeway to decide what forms of identification they will accept. Illegals with Matricula cards (ID cards issued by a Mexican consulate in the U.S.) are permitted to open bank accounts in some states, including Illinois.

Mexican immigrants working off the books are usually paid in cash, and must pay bills and other expenses (such as rent) in cash. Many leave and re-enter the country multiple times, paying coyotes substantial amounts—in cash—for each episode.

Incredibly, Mexicans living in Mexico are estimated to have dollar cash holdings equal to half of the average cash holdings U.S. residents living in the U. S., according to the Fed study. So Mexicans come here trusting and feeling comfortable with holding U.S. dollars.

Remittances are primarily a cash-to-cash transaction: Mexican immigrants present cash at a Western Union counter, and the recipient in Mexico picks up the funds in cash. Banks in both the U.S. and Mexico have begun offering free checking and money transfer services to capture a larger share of this market. But there`ve been few takers: As of 2004 less than 5 percent of remittances were done via direct deposit into bank accounts.

Interestingly, the Fed researchers found crime rates to be negatively correlated to holdings of $100 bills. This may reflect the propensity of non-criminals in high crime neighborhoods to carry less cash on their person. Although drug dealing involves enormous sums of cash, it is a victimless crime. Most illicit sales are unreported and are not reflected in the neighborhood crime rate. ( Muggings undertaken to finance a drug habit rarely net $100 bills.)

This is not to say no link exists between cash and immigrant crime. That relationship is perhaps best seen by tracking remittance flows between the U.S. and Mexico. Remote Mexican states that send relatively few immigrants to the U.S., but which are centers of the drug trade, receive a disproportionate share of remittances. [See Migration, the Diaspora and development: The case of Mexico, By Agustín Escobar and Latapí Eric Janssen (PDF) p. 9, note 20]

The International Monetary Fund estimates that money laundering accounts for two to five percent of global GDP. In a narco state it is surely much more.

Edwin S. Rubenstein (email him) is President of ESR Research Economic Consultants in Indianapolis.