MONEY cash

Why $100 Bills and €500 Notes May Soon Be Killed Off

Stack of money
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Large currency denominations are associated with crime. They also make it easier to withdraw large cash sums from banks.

The $100 bill has always had a complicated relationship with the public. On the one hand, the “It’s All About the Benjamins” attitude has been a strong staple in popular culture. The $100 bill represents wealth and success, as a currency’s largest denomination well should.

But the $100 has always also been the black sheep of American currency. It’s the only bill that doesn’t have a D.C. building on it (Independence Hall is in Philadelphia), and one of two that doesn’t feature a president (Hamilton’s $10 is the other). Most people feel compelled to apologize and ask for permission before they pay with a $100 bill at shops and restaurants, and some stores won’t even accept them. Even bank robbers eschew these bills (“give me non-sequential $20s, no $100s”).

Now, former Secretary of the Treasury Lawrence H. Summers has called for the $100 bill’s execution, just as the Financial Times reported that the European Central Bank is planning on killing another big bill overseas, the €500.

In an op-ed for the Washington Post, Summers cites a new study from Harvard’s Kennedy school by banker Peter Sands—he’s President Emeritus of Harvard—that made a strong case for the elimination of the £50, the €500, the Swiss CHF 1,000, as well as the $100 because large currency notes such as these are the “preferred payment mechanism of those pursuing illicit activities, given the anonymity and lack of transaction record they offer, and the relative ease with which they can be transported and moved.”

This is apparently an enormous problem. According to the study, only 1% of shady transactions are seized by authorities, and this has a massive effect on the world by way of tax evasion, corruption, terrorism, and garden-variety money laundering for criminal enterprise. The dubious use of high-denomination bills has actually even earned the €500 note a nickname: the “Bin Laden.”

In his op-ed, Summers remembers opposing the high-denomination €500 in the late ’90s when the euro was being designed. Back then, Treasury Secretary Summers maintained that large denominations were “highly irresponsible and mostly would be a boon to corruption and crime.” He even proposed killing the U.S.’s $100 bill to walk his talk. Eventually, the €500 was approved—apparently without much of a fight because Germany really wanted it—and the $100 is obviously still around. But recent calls for eliminating the large euro bills have set the wheels in motion, despite the preference in German and Austrian to pay cash for many purchases.

Do you know how heavy a briefcase full of $100s is?

A world without a $100 or €500 note would be an inconvenience for the relatively small group of people that actually likes making big-ticket purchases in cash. But removing large notes such as these would make life extremely difficult for criminals. A Zero Halliburton attaché case full of $100 bills in their mustard-colored straps can only hold about $1 million. Together, they’d weigh around 27 pounds. For a money launderer, terrorist henchman, or blackmailed husband, resorting to $50 bills would require two briefcases. The same amount of cash in $20s would mean five briefcases—and 135 pounds to carry.

Similar math can be done no matter what the currency. “If a drugs gang collects up to £1m in twenties from its clients on street corners, those notes will weigh more than 50kg – about 50 bags of sugar,” the BBC reported five years ago. “The equivalent in 500 euro banknotes weighs just over 2kg.”

The point is that the sheer unwieldiness of using lower-denomination cash could be enough to disrupt criminal business models. Any organization dependent on large quantities of illicit cash would have to find another, more costly way of moving money, and it’s likely that whatever method they use would increase the likelihood of detection.

The elimination of high-denomination bills has precedent: In 2000, Canada got rid of its $1,000 bills and Singapore ditched its $10,000 bills. In the U.K., there are already calls to scrap the £50 note. Still, Switzerland, famous for its financial discretion, doesn’t appear to be rejecting its massive CHF 1,000 note—the most valuable in the G10.

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A more cynical possibility

While the case for abolishing high-denomination bills seems fairly clear-cut, not everyone is on board. As mentioned, in Germany and Austria especially, there’s a certain love for big bills. According to the Financial Times, a German newspaper has started a letter-writing campaign (probably not email, given their print-fetishization) protesting the European Central Bank’s plans to scrap the €500. Austria is also standing its ground in regard to the big bill.

Cash also has the added benefit of providing emergency reserves for people “with unstable exchange rates, repressive governments, capital controls or a history of banking collapses,” as the Financial Times noted in a piece earlier this week, disagreeing with Sands’s idea that big bills are only a tool for criminality.

But not all protests stem from a love of the cash, or its common utility. Insider-finance blog ZeroHedge takes a more cynical view of the authorities distaste for the €500, claiming the real reason for killing the note is to remove a significant amount of cash from the economy. Around one-third of all euro cash in circulation is currently held in €500 notes. Removing that much cash from the economic system would direct more money to banks, which would give the central bank more control, preventing a bank run of massive withdrawals. This could be especially important considering the ECB’s negative interest rates that could end up charging people for keeping money in the bank cost something, rather than paying interest. But in the case of the US, hoarding cash is not of major concern.

Then again, removing the high-denomination bills may not be motivated by monetary policy at all. According to the Financial Times, ECB governor Mario Draghi has said that killing the €500 has nothing to do with reducing cash, and everything to do with fighting criminal activity. High-denomination bills can be replaced by lower denomination ones to keep circulation constant. Though the government’s seigniorage income—the profit difference between the cost of minting a bill and its value—would be reduced, Sands’s study says that the effect against tax evasion would more than make up for the added costs.

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