For most of us the purple €500 notes – their bridges symbolising European unity – are as rare as hen’s teeth. However they are, apparently, the “currency of choice” for the gangster class, criminals and terrorists, a handy means of transporting, concealing and trading value out of reach and sight. Handy too for evading tax.
The idea of making life a little bit more complicated for these users has prompted discussion of scrapping the notes. A report from Peter Sands, ex-chief executive officer of Standard Chartered, now a Harvard academic, suggests the €500 note, the US $100 bill, Switzerland's 1,000-franc note and Britain's £50 note should be eliminated to make the transfer of illicit funds more difficult. The notes "play little role in the functioning of the legitimate economy, yet a crucial role in the underground economy," Sands argues.
Some $2 trillion in money related to illegal activities is moved globally every year, much in cash, with corruption amounting to another $1 trillion, according to Sands’s report. Less than one per cent of illicit flows are seized.
Law enforcement authorities have expressed concern over several years and European Central Bank President Mario Draghi has said his institution is reviewing its policies. He told the European Parliament last week that the €500 note was increasingly viewed as an instrument for illegal activities. A move to scrap it had nothing to do with reducing cash, he added, and people would continue to save using €200 notes. The €500 note makes up just 3.2 per cent of all banknotes but almost 30 per cent in terms of value. Among its early champions was Germany on the basis that it would match the old 1,000 mark note.
In an era of negative or zero interest rates the cash-rich, it seems, are increasingly tempted to store their wealth in banknotes. According to the Financial Times, it would cost just €60 to store €3 million in €500 notes in a safe-deposit box at Deutsche Bank for a year. To store the same amount in €50 bills – in a bigger box – would cost €380. Of course, this may not be a problem you have come across...