[Dave Birch] I was invited to give a talk at the Crossing Borders International Technology Festival 2013 so I put together a few slides about trends in the European retail payments marketplace, but as my talk on the Future of Money at the Meaning Conference in Brighton had gone so well, at the last minute I decided to give a cut down version of that talk instead. It seemed to go OK, but my point about the use of cash in a modern economy seem to have particular resonance with the Dutch audience and several people spoke to me about that particular topic during the break.

One guy came up to me and told that he owned fourteen properties in the Netherlands, some houses and some apartments, and that he always paid his builders in cash, He said that the “white price” for building work in the Netherlands is approach twice the “black price” because the builders use cash not only to evade VAT but also to pay their staff and suppliers in cash, thus avoiding income tax and corporate taxes as well. I joked with him saying that 200 and 500 euro notes were never used for legitimate transactions and he replied, entirely seriously, that he had never used a 100 euro note in a legitimate transaction either!

This point came back to me yesterday when I saw Twitter comment about the Senate hearing on Bitcoin. As someone remarked, all of the complaints about Bitcoin with respect to crime also apply to cash. Yes, and they might have added the additional point that cash is actually the mass market solution! And why worry about Bitcoin being used for money laundering when money laundering with cash is rampant? This is a very good point.

When is someone going to do something about this crazy state of euro banknote affairs? It’s not as if the authorities do not know about the pernicious and appalling consequences of Europe’s high cash usage.

Boris Boillon was arrested as he boarded a Brussels-bound train at the Gare du Nord on July 31st. The French diplomat turned businessman wore blue jeans and a sports shirt and carried €350,000 plus $40,000 in cash, but no identity papers and no telephone… illustrated the explosion of the underground economy, which is greatly facilitated by the €500 banknote

[From The €500 note: a glamorous instrument for criminals – European News | Latest News from Across Europe | The Irish Times – Mon, Nov 04, 2013]

See that. Not “greatly facilitated” by Bitcoin or prepaid cards or M-PESA but by the means of exchange actually provided by the European Central Bank! How are they allowed to print 500 euro notes that have no legitimate use?

UK Financial Intelligence Unit banned the sale and exchange of €500 banknotes in Britain. The unit’s study showed more than 90 per cent of €500 notes in the UK were used by criminals.

[From The €500 note: a glamorous instrument for criminals – European News | Latest News from Across Europe | The Irish Times – Mon, Nov 04, 2013]

As I wrote six years ago, it really annoys me to see innovation in electronic transactions undermined by concerns about crime when cash gets a free pass. It was obvious from the start that it was a stupid decision to print such high value bank notes.

One of the things that I learned was that the money-launderers best friend, the 500 euro note, is increasing in popularity as it strives to replace the $100 bill as the criminals’ store-of-value of choice.

[From Digital Money: More on the cash menace]

And by the way, it is not only techno-utopian electronic transaction nerds like me that think that this is an odd state of affairs. Surely it ought to be one of the ECBs explicit goals to raise the cost of criminal activity, not to obtain seigniorage from subsidising it.

“I don’t understand why we’re still making €500 banknotes,” Jean-Baptiste Carpentier, the director of Tracfin, the unit that fights money-laundering at the French finance ministry, testified last year. Most French shops accept neither €500 nor €200 banknotes.

[From The €500 note: a glamorous instrument for criminals – European News | Latest News from Across Europe | The Irish Times – Mon, Nov 04, 2013]

I’ve always been baffled by this. I have absolutely no idea why €500 notes were ever printed. There is no good argument for keeping them, and some very good economic arguments for getting rid of them. including some that may not have occurred to you (or to me, for that matter). One of them is that electronic currency removes the zero floor on interest rates, which I’ve mentioned before. Another is…

[Bank of America analyst Athanasios Vamvakidis] raises another interesting point that might benefit Europe: abolishment of the 500 € bill would most likely reduce demand for euros, making the currency weaker. This would give much-needed support to the euro zone economies that are highly dependent on exports, and are only now starting to leave the recession behind them.

[From The 500 € note dilemma: getting rid of bin Laden once more]

It’s time for action. Something must be done.

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers


  1. David

    Your arguments are strong and clear. Can you answer a question? How would the story line be different if Boris Boillon had used BitCoin in his caper? How would you respond to that storyline? For all the liquidity and anonymity cash provides, at least it is a detectable (large bundles of cash are hard to move around) and govs have regulations in place to deal with this. This is in support of eliminating the large notes as you advocate, but to challenge that electronic currencies, while not currently a favoured medium, that transactions won’t migrate to e-currencies as these notes are removed from circulation.

  2. What about large-ish transactions between strangers for items on Craigslist? When transacting something like furniture or a car between strangers, people often prefer not to have to take a chance with a personal check. And I recently discovered that not everybody has Paypal. I live in the US, but there have been times recently I wished I had $1000s, because buying a $3000 piece of furniture from a stranger on craigslist requires a lot of counting, even with $100s. Increasing the convenience of exchanging used items adds efficiency to the economy (reduces waste). Requiring middlemen to intermediate the transactions reduces the number of matches that will be made and thus the realization of consumer value. So some form of frictionless, irreversible, verifiable person-to-person payment system seems to serve a valuable role there. I suppose there is the tax issue there though…in any case in California, occasional sellers are not required to charge sales tax.
    The capital costs of requiring middlemen to intermediate person-to-person sales would be prohibitively expensive for items that have a only a small number of buyers who place a high value on it,
    I certainly can see the other side, but I also think the case should be made for the amount of value that is created by making it easy for individuals to exchange goods.

  3. I’m very concerned that the future of money discussion completely ignores the actual problems with money – systemic bank fraud, manipulation, built in poverty, fractional reserve banking, loss of sovereignty, the growth imperative etc, and instead concentrates on the future of payment technologies.
    I’m also super disappointed that, in view of the magnitude of crimes committed in the City, we are wasting our time talking about heists which can be carried in suitcases full of EUR500 notes. While our elected representatives are brokering arms deals, war-mongering, and turning a blind eye to all banking crime your are demonising the people who actually create value and refuse to hand it over to that disgusting elite clique.

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