Data published on the Federal Reserve’s website show a dramatic increase in the fraction of U.S. Federal Reserve notes that are estimated to be held in foreign countries. The fraction of U.S. Federal Reserve notes held abroad rose from under 20 percent in 1980 to almost 50 percent in the late 1990s.
Given these innovations, a government that pressures a central bank to pursue an inflationary policy gets much less benefit for each unit increase in inflation because people can more easily switch out of the local currency. In other words, the inflation tax becomes much more difficult and costly to levy because citizens can more easily avoid the tax by using an alternative money.