How Much Will It Cost to Dispose of 30 Million Defective $100 Bills?

Due to production errors, the Federal Reserve will have to dispose of 30 million defective $100 bills. Exactly how much will that cost the government?

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The new and improved 100-dollar bill, designed to cut down on counterfeiters, was expected to be released back in 2010, but production snafus delayed that date to 2011, and then again to October 2013. Today, David Wolman of The New Yorker reports that 30 million of the new $100 bills were incorrectly produced, and so the Federal Reserve might have to delay the bills' release once again.

It's another embarrassing problem for the Federal Reserve, which budgeted for the bills' release, and the Bureau of Engraving and Printing, which was responsible for its production. (Appropriately, the bureau's website is named The bills' release in October can still be salvaged if the Fort Worth, Texas branch of production makes up for the problems at the Washington, D.C. mint printer, but that timetable might not be feasible. Update: A spokesperson for the Bureau says that despite "concerns during production validation" at the D.C. branch, the fulfillment of the complete money order to the Federal Reserve remains on schedule for this fall.

Importantly, though, the problem won't cost the government that much to fix, even though the bills represent $3 billion. Because the defective bills were not approved for release to the public, the cost of this faulty episode won't approach that number. Certainly, the production of new bills and disposal of the defective bills will cost taxpayers. Exactly how much will this error cost? With some back-of-the-napkin calculations, we came to a cost of $3.79 million. Let's go through that process.

The old $100 bill cost just 7.8 cents to make, according to the Fed, but the newer version's state-of-the-art features — including a 3D security ribbon, color-changing liberty bell, and watermarks galore — will surely increase the cost of production. The Fed's budget plan lists the new $100 at 12.6 cents per bill, which comes near an estimate in a 2010 article in The Washington Post that the new Benjamins would cost about 12 cents to produce.

Now let's do some basic math. 12.6 cents, or .126 dollars, multiplied by 30 million defective bills, comes out to wasted production cost of $3.78 million. So production of 30 million replacement 100-dollar bills will only cost about .1% of the value of those bills.

In addition, there are the costs of disposal of the defective money. A 2011 article in The Atlantic explains that about 6 billion bills are disposed every year. With 37 regional Fed banks, this comes to about 160 million bills per branch. In a 1997 article in The New York Times, an executive at the Fed branch in Los Angeles said disposal of his undisclosed amount of bills amounted to $60,000 annually. Let's assume that all Fed branches pay the same amount for money disposal (again, these are estimates). Using proportions, we see that if disposal of 160 million bills costs 60 grand, then disposal of 30 million 100-dollar bills will cost $12,000.

That $12,000 cost is not that much compared to the previous $3.78 million estimation, and added together, we now come to a cost of about $3.79 million dollars for disposal of defective bills and production of new ones. There are, in addition, costs for employees, overtime, and inspections, but the simple cost of disposing the defective bills and introducing the new ones won't be terribly costly for taxpayers.

Pretty strange to consider that all the money in your wallet isn't worth much, no? And therein lies the truly important cost of the error, as Wolman notes:

"It threatens to injure the aura—the almightiness—of the dollar that enables most people to go about their business without ever stopping to examine the bills in their hand or to contemplate what gives them value. The only thing conferring value on those dollars, of course, is trust in other people’s trust in them, which is both weird and magnificent."

Yes, trust in money is all that matters here. Which is why the continued bungling by the Fed and Bureau to produce new $100 bills is concerning, though not for the small monetary costs of the error.

Photos of new $100 bills: Bureau of Engraving and Printing; Photo of pile of $100 bills: REUTERS/Lee Jae-Won

This article is from the archive of our partner The Wire.