That cash in your wallet won't last forever, so what happens to it when it needs to be replaced?
by Daniel Indiviglio
Think about money being created. A furiously spinning printing press might come to mind. Now imagine money being destroyed. Do you think of a three-story shredder, a bonfire, a wide blue recycling bin?
You might have noticed that it's pretty hard to find any cash printed much earlier than the 1990s in circulation. Just as more money is constantly being created, it's also constantly being destroyed. Who are the destroyers of money, and how do they do it?
In order to explain money destruction, we have to define what we mean by money destruction. For example, are we talking about money being eliminated, its very presence disappearing from the economy? Or are we talking about when money is physically destroyed but replaced with newer, crisper currency? Let's consider both questions.
When Money Disappears
You probably know that the Federal Reserve controls the money supply, the technical term for the amount of money in the economy. When the money supply expands, money flows into the financial system. When the money supply contracts, money drains out of the financial system. But how does the money actually disappear?
In 2010, 2.6 billion $1 bills were destroyed.
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