Let’s just suspend reality for a moment and assume that it wasn’t a massive counterfeit risk, wrought with all kinds of problems, and that the rollout went perfectly with flawless security, no software bugs that allowed people to glitch the ATM, the logistics of transporting and distributing the special paper ink, and security strips were resolved, the machines could be serviced securely, and they were perfectly calibrated so an ATM couldn’t ever start misprinting bills etc…
What the hell would be the point? What advantage would printing the bills accomplish? You’d still have to deliver the paper/ink etc. via armored care like you would with distributing fully-formed pager currency. Not to mention there’s a major issue with diluting the value of the dollar. The fed does increase/decrease the money supply via the money multiplier and interest rates, but this is done through tight, centralized controls. If you weren’t destroying every dollar deposited for each one printed, you’d have major problems with the money supply.