The War on Cash: Bye-Bye 500-Euro Note

Well, that didn’t take long.

In February, we reported that a former Obama economic adviser/ex-Treasury Secretary had floated the idea of eliminating the $100 bill and the 500-euro note in the escalating war on cash.

On Wednesday, the European Central bank announced it will stop producing and issuing 500-euro notes around the end of 2018. Once the bank stops issuing the notes, those remaining in circulation will remain legal tender – at least for the time being.

In a press release, the EBC said it made the decision to eliminate the 500-euro note due to “concerns that this banknote could facilitate illicit activities.”

Virtually all of the mainstream reporting went with this “we’re doing it to fight crime” spin. Take this opening paragraph from the New York Times:

A suitcase stuffed full of cash may soon be worth a lot less. In a move aimed at hampering cash transactions by terrorists, drug dealers and money launderers, the European Central Bank on Wednesday announced an end to the 500-euro bank note, worth roughly $575.”

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But buried deep in the Times story, the reporter swerves into the truth. There is another, more fundamental reason central banks want to eliminate large bills:

One leading German economist also accused the European Central Bank of ulterior motives. With fewer large bills, it will be easier for the central bank to push interest rates to new lows, said Clemens Fuest, president of the Ifo economic research institute in Munich, which has been critical of the central bank’s cheap money policies. That is because for almost two years the European Central Bank has been charging lenders a so-called negative interest rate to keep money in its virtual vaults, which are considered the ultimate safe haven…In theory, banks can avoid this de facto rent on their deposits by holding cash in their own vaults. But in practice it is expensive to store large amounts of bills safely — and it would become even more so if the denominations were smaller.”

And there you have the crux of the war on cash. It’s not really about controlling “criminals.” It’s about controlling you.

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