Greenberg: Will coronavirus end the use of paper money?

Paper money is fundamentally dirty. Struggling businesses usually don't mind, but amid COVID-19, some are foregoing cash sales in lieu of contactless smartphones or plastic. If cash is a vector of infection, should we socially distance from it?

Although the World Health Organization has not advised banning paper money, it has stressed the need for handwashing after touching cash, especially before handling food. Some central banks are deploying measures to sterilize paper money with heat or UV light. The Federal Reserve began a seven to 10-day quarantine for U.S. dollars returning to the country from Europe and Asia several weeks ago.

Even before the pandemic, paper money was not clean. Recent studies show that over 90% of U.S. paper money contains bacterial colonization, mostly from Staph aureus, Salmonella and E. coli.

And yet, as the primary symbol of the stability and strength of the American economy, federal reserve notes are contested cultural space and often resistant to change. Think for example of Treasury Secretary Steven Mnuchin delaying placing Harriet Tubman on the $20 bill. As a result, U.S. paper money has looked much the same for over 50 years, with only a few minor, anti-counterfeiting updates.

But for much of American history, public health epidemics regularly transformed the production and circulation of paper money as the government sought to maintain an efficient and safe economy. The COVID-19 pandemic provides an important opening for officials to once again reassess how the public interacts with its money and update the currency system to meet the demands of the moment.

Dirty money is as old as the country, and there is precedent for disease altering its circulation. Constantly short of cash to pay for the Revolution, each of the original 13 states (and Vermont) circulated their own notes in addition to the famously inflationary Continentals issued by Congress. It was not always a smooth process. When smallpox hit New Bern in the spring of 1779, it disrupted the work of printer James Davis who was fulfilling an order for millions of dollars of North Carolina paper money. With local funds for the Revolutionary War effort running low and fears of infected cash, state officials quickly shifted production of new, clean money 90 miles south to Wilmington.

In the 19th century, as doctors began to probe the transmission of diseases, dirty money became seen as a public health threat.

During a cholera outbreak in 1849, Thomas Buckler, the elitist physician at the Baltimore Almshouse, blamed the epidemic on the “circulation of bank notes, of a low denomination.” His widely read observations posited that impoverished, urban residents unknowingly spread disease with cheaply produced paper money. Buckler's argument even influenced some legislators who called for removing small denomination bills from circulation in favor of more hearty metal coins. They used paternalistic language to argue that such a system would maintain the proper balance between safety and economic growth. Merchants could still utilize large denomination notes to conduct their business, while the poor would be protected from dirty, troublesome bank notes.

Most state governments attempted to institute these small-denomination regulations, but they were short-lived due to resistance from consumers over a lack of available coins to make the prohibitions work properly.

Another worry in the antebellum era was for the health of clerks who handled a large amount of bank notes. The deaths of a bank teller in Columbus, Ohio and a Boston auction house employee were blamed on smallpox contracted through infected paper money. In 1859, Peterson's Counterfeit Detector warned people who “handle bank notes, not to wet their thumbs while counting the bills,” if the “thumb comes in contact with the tongue after handling a note from the pocket of a man infected with the small pox, the infection is as sure to take effect as the inoculation of a child.” Unfortunately, the government did little to address the problem. Before the Civil War, state-regulated banks printed their own notes and federal officials played almost no role in regulating paper money.

Concrete steps to clean the paper money supply began in earnest after the Civil War ushered in uniform national paper currency. New federal oversight coincided with an emerging medical consensus about person-to-person transmission of microscopic viruses and bacteria. When a smallpox outbreak hit New York, Philadelphia, Boston and New Orleans between 1865 and 1873, more than 70,000 Americans died and created an urgency for clean paper money. The Treasury Department finally began a redemption program in 1874 that enabled banks to exchange soiled notes for new ones. However, local branches bore responsibility for the program's expense, limiting its effectiveness.

The last major domestic smallpox outbreak occurred around Boston between 1901 and 1903 with more than 1,500 people infected and nearly 300 deaths. Doctors and scientists responded with a campaign to ensure a supply of clean money. The Journal of the American Medical Association called for removing “Dirty Money” from circulation. One of the most outspoken voices for vigorous government intervention was New York Academy of Sciences President Abraham Cressy “Clean Money” Morrison. His public education campaign on dirty paper money soon paid dividends. By 1905, Treasury's redemption bureau reported being overwhelmed trying to meet demand for clean bills, but without any plan for new policies.

The government finally acted after a 1908 study tied cases of syphilis and scarlet fever in New York to tainted money. When the Treasury Department's own research confirmed that dirty paper money contained billions of germs per square inch, they launched a “governmental war on germs.” The director of the Bureau of Engraving and Printing, Joseph Ralph, submitted his initial plan in 1909 to wash soiled notes in a chemical bath, prolonging their life while offering the public peace of mind about disease.

The plan did not do enough. After an 11-year old girl supposedly contracted smallpox from paper money, the Treasury Department began paying the postage for banks that turned in soiled bills. It was a small change, but one that increased redemption and decreased dirty bills in circulation. This process was included in the Federal Reserve Act of 1913, which designed a new national currency and contained explicit language on how and when to destroy notes that became “unfit for circulation.” It took a couple of decades for federal reserve notes (the ones we use today) to supplant other forms of paper money, but the mission to ensure a clean money supply took hold and this is the system we have today.

The history of paper money has shown that in moments of crisis, the Treasury Department has the power and wherewithal to adapt the currency system to balance the nation's economic and health needs.

So what might social distancing from paper money look like? During the debate over the Cares Act, a proposal from Sen. Sherrod Brown called for the creation of “digital dollars” for American citizens and residents. This new paperless money would reside in free digital wallets accessible through banks or post offices. In the short term, the digital dollars could be used to speed COVID-19 relief funds to the unbanked or underbanked. But if accepted, it would also radically change the complexion of the nation's money supply, making our transactions less risky to our health, while addressing concerns that eliminating cash entirely would leave many individuals behind.

Joshua Greenberg is an associate professor of resource economics at the University of Alaska, Fairbanks. From the Washington Post.

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