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.
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