Last year a Colombian woman arriving at Bogotá airport was found to have swallowed 64 latex-covered capsules, each containing five $100 bills. At Heathrow two years ago, a smuggler trying to fly out to meet an Isis sympathiser in Turkey was caught with 40 €500 notes in her underwear.
Neither crime would have been possible — on such a scale, at least — if high-denomination notes were taken out of circulation. And that is the simple goal of a group of academics and financial-crime experts, convinced that such notes — the €500 note, the $100 bill, the SFr1,000 note and the £50 note — have made it too easy for mobsters, tax cheats and terrorists to move large sums without detection.
Getting rid of the notes would be easy and legitimate business would barely notice, says Peter Sands, the former Standard Chartered chief executive who has published a paper on the topic from his new position at Harvard Kennedy School. “It’s not often that you come across a policy proposal that is simultaneously easy-to-implement, has a powerful positive impact, and very limited downside,” he says.
Countries have taken high-value notes out of commission in the recent past. Canada scrapped a C$1,000 note in 2000, while Singapore did the same for a S$10,000 note two years ago.
But forging an international consensus to do away with the most widely used high-value bills — the $100 and €500 notes — may not be easy.
Germany, for example, is still very fond of cash in all its guises, and views attempts to limit the free circulation of notes with suspicion. Last year Carl-Ludwig Thiele, an executive board member at the Bundesbank, gave a presentation to the Bank for International Settlements in which he spelt out the enduring appeal of cash, and warned that any attempt by banks to impose negative interest rates on ordinary depositors would result in them hoarding more of it.
“The Bundesbank rejects any calls for restrictions on cash holdings, which have been voiced by some in light of this situation,” he said.
Some governments may also fear the loss of seignorage, or the income generated by central banks from issuing interest-free currency, minus the cost of production. If the total value of cash outstanding were to fall after cutting out high-denomination notes, then so too would that income.
Rob Wainwright, director of Europol, the European police organisation, notes that the Central Bank of Luxembourg is a particularly prolific producer of high-denomination notes, even though surveys show the country to be among the most cash-averse in Europe, along with France and the Netherlands.
According to a Europol report published last July, Luxembourg issued notes equivalent to 194 per cent of its gross domestic product in 2013, compared with 16 per cent in Germany, 9 per cent in Italy and 4 per cent in France. The anomaly is “quite striking,” says Mr Wainwright.
The €500 note accounts for about 30 per cent of the value of all notes in circulation in the eurozone, adds Mr Wainwright, “but they’re hardly ever used or seen by people in business. The evidence we have certainly links to criminal activity.”
Mr Wainwright appears to have an ally in Mario Draghi, the governor of the European Central Bank and former governor of the Bank of Italy, which produced a study in 2009 showing how high-value bills were the stock-in-trade of the mafia. Last week, in response to an European Commission announcement that it would investigate the role of the €500 note in terrorism finance, Mr Draghi said that the ECB wanted to make “orderly” changes, and was “determined not to make seignorage a comfort for criminals”.
David Lewis, Paris-based executive secretary of the Financial Action Task Force, an inter-governmental body set up 27 years ago to combat money-laundering, notes that the timing of Mr Sands’ campaign is good, in the wake of the recent terror attacks in France and the migration crisis across Europe. He says that “a large portion” of cash smuggled across borders comes from people trafficking — not far behind drugs trafficking and tax fraud.
Mr Sands says he hopes that the matter can get on the agenda of the next G20 summit in Hangzhou in China. Until then, says Mr Lewis, the best thing the FATF can do is to “ensure attention to the criminal use of these notes, and ask countries to think again if it’s appropriate to issue them”.
Mr Sands says it is ironic that the billions of dollars spent by banks on upgrading systems to track electronic transfers of illicit funds has increased the allure of cold, hard cash.
“If you really want to tackle money laundering it seems a bit perverse not to tackle cash, which is actually the preferred mechanism of people who want to launder money,” he says.
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