Despite the growth of checks as a means of payment, an increasing percentage and dollar amount of expenditures are made with cash -- legal tender. Between 1950 and 1986, the amount of legal tender held by the population increased from $179 per capita to $874 per capita. 18 A study by Avery et al. ( 1987) revealed that 34 percent of aggregate household expenditures in 1986 were made with cash, up two percentage points from 1984. Most of the cash expenditures were made by low-income, nonwhite or Hispanic families. Moreover, most cash expenditures were made by families where the head of the households were relatively young (forty-four years or less) or elderly (sixty-five years or more). The elderly portion of our population is growing significantly. The study also found that a large percentage of cash was hoarded and may be used for underground or illegitimate purposes in the United States or offshore.
A study by Canner and Maland ( 1987) observed that 79 percent of all families had checking accounts. A survey of those who do not have checking accounts revealed that 13 percent of the respondents preferred currency and money orders to other means of payment. Relatively high service charges and minimum balances on checking accounts were the reason why most respondents did not have checking or savings accounts. The fact that a large and growing part of our population make extensive use of legal tender for transactions because they cannot afford checking or savings accounts has given rise to a demand for basic banking services. Basic banking refers to low cost-transaction accounts for those who cannot afford regular banking services. In October 1986, the Federal Financial Institutions Examination Council endorsed a policy encouraging banks to offer basic banking services. Massachusetts, Rhode Island, Illinois, Pennsylvania, and other states have adopted laws relating to basic banking.
Along with the growing use of legal tender comes the fact that an increasing number of retail outlets and gasoline service stations only accept small denominations, especially during nighttime hours. In most cases they are offering goods for sale under the condition that the buyer pay with small denomination legal tender. Conditional sales requiring specific denominations are legal. However, there are legal gray areas where buyers are not aware of the conditions specifying particular denominations and incur a debt. For example, what happens when a buyer who is unaware that a gas station will not accept bills larger than $20, fills his or her gas tank, thereby incurring a debt, and tenders a $50 bill in payment? The courts have not ruled on such a case, and opinions of lawyers and judges who were asked about such a situation varied considerably.
The practice of restricting the use of certain denominations of legal tender in commercial transactions raises questions about the "liquidity" of large denomination currency. Federal Reserve notes with $50 and $100 denominations account for 72 percent of the total dollar volume of Federal Notes outstanding. 19
The history of legal tender in the United States dates back to the Colonial period when the Continental Congress needed fiat money to support the Revolutionary War effort. It became an issue again during the Civil War for the same reason. During the Depression, however, the reason changed, but the intent