Time To End Big Bank Notes?

March 23, 2016 in Daily Bulletin

ending high denomination

The Economist wrote that there’s a case to be made for eliminating large denomination notes:

  • Most Swiss merchants don’t accept them, yet the 1,000 Swiss Frank Note makes up 60% of all Swiss cash in circulation.
  • The notes are popular with criminals. According to one investigation only 10% of high denomination notes are used for legal purposes.
  • High denomination notes are so valuable that the unscrupulous will sometimes pay more than face value for them.
  • They’re attractive because of their anonymity. They’re also easy to transport. The SFr 1,000 is, for example, worth 20 times its weight in gold.
  • Some countries are looking to follow Britain’s example- where the highest available note is £50.
  • Others worry that this is the first step towards a cash-less society where anonymous transactions will be impossible – vastly increasing the power of the state.
  • And taking a note out of circulation is slow. Governments can stop printing new ones, but old ones will still spin around. 16 years after Canada stopped printing the C$1,000 note, 20% of them remain in circulation.
  • Any one country eliminating high end notes probably won’t have much of an impact either since dealers and traffickers will just move to high denomination notes of another currency.
  • Still governments may give it a go. It would, for example, make it easier to impose negative interest rates since savers would find it more difficult to take their money out of the bank and hold it all in small denomination cash.
  • It could also make it harder to evade taxes – an attractive prospect for austerity weary governments.

Read more here.

Source: The Economist