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Over thirty years ago, I tried paying my college tuition bill with cash. The college refused my money! Without paying via some type of check, I wouldn't be enrolled. (Would it be cynical of me to suspect they didn't trust their employees not to pocket some cash?) It mattered not when I pointed out that "this note is legal tender for all debts public and private." Too bad — it is what it is.
The phrase "this note is legal tender for all debts public and private" means it is a valid "offer", but does not obligate someone to "accept" cash.
Quote:
Originally Posted by Federal Reserve
This statute means that all United States money as identified above is a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person, or an organization must accept currency or coins as payment for goods or services. Private businesses are free to develop their own policies on whether to accept cash unless there is a state law which says otherwise. FRB: Is it legal for a business in the United States to refuse cash as a form of payment? Jun 17, 2011
Businesses that do not accept cash in the USA, like apartment rental, tuition payments, some posh restaurants, and probably some high end retail are probably more concerned about insurance payments, accounting, and employee safety than they are about employee theft. Denmark is considering removing cash registers from most retail stores, convenience stores, and gas stations. However in the USA the benefits would be outweighed by the loss of business, and the difficulty of dealing with irate customers.
The European Union currencies other than the Euro have a strong incentive to increase electronic payments
British Pound
Danish krone
Swedish krona
Polish złoty
Romanian leu
Czech koruna
Hungarian forint
Croatian kuna
Bulgarian lev
There are 338 million people in the Euro area and 169.9 million in the 9 countries of the European Union that are not in the Euro area.
Iceland was as close to cashless as any country has been, but the nationwide crash of their banks made them believers in cash again. Their story should be an object lesson.
Sweden has reduced their cash in circulation by 36% from it's peak 8 years ago. AFAIK they are the only nation actively trying to reduce their cash. Many nations are trying to encourage electronic payments, but they are not reducing cash at the same time.
Time to get rid of the €500 bill?
Demand for the euro as a store of value has started declining. We use the demand for the €500 bill, which is by far the highest currency denomination in G10, to document this trend and argue that it could eventually weaken the euro.
Although the ECB has no plans to remove the €500 bill from circulation, we argue that it should do so. It will weaken the euro, supporting the economy. It will address concerns that the bill is primarily used to hide illegal income. More importantly, we propose a scheme in which the removal of the bill will be a tax on illegal income, allowing using the proceeds to address the periphery crisis.
The €500 bill is by far the highest currency denomination in G10 and one of the highest in the world (Chart
An ECB study suggests that only one-third of the €500 bills in circulation are used for transaction purposes. The remainder is used as store-of-value.
But who is 'hoarding this store of value' outside a bank?
Holding large amounts of “mattress cash” to store value outside the banking system raises many questions. A number of banks in the Eurozone remain weak after the global and Eurozone crises, but European banks were considered to be strong and enjoyed the public’s confidence in the pre-crisis years. Indeed, some evidence suggests that the €500 bill is popular with criminals and tax evaders:
Money exchange offices in the UK stopped selling €500 notes from 20 April 2010, because of their use in money laundering. Indeed, according to the Serious Organized Crime Agency, 90% of all €500 bills sold in the UK are in the hands of organized crime.
According to the New York Times, one fourth of the €500 notes in 2006 were in Spain, despite a GDP of only 11.5% of the Eurozone’s GDP at that time. This may have to do with the large share of the underground economy in the country. The Spanish public had nicknamed them “Bin Ladens”, as everyone knew they were there, but nobody had ever seen them.
Reports suggest that the police in various countries use the bill to track money laundering.
Other countries have removed large denominations because of such concerns. US President Nixon issued an order in 1969 discontinuing the US$500 bill as a way of combating money laundering by organized crime. Canada withdrew C$1,000 bills in 2000, because of growing concerns over their use by organized crime.
The fear is that the drop in demand for EUR500 bills reflects on the more general decline in the demand for the euro as a store of value...
The article mentions several high value banknotes. It is valuable to know how many high value banknotes were in circulation. The 1000DM in circulation in Germany was the main motivation for producing the €500 banknote for the Euro. The 1000DGG banknote in circulation in Netherlands was secondary motive.
$500 banknotes produced in USA before WWII: 4 million
$1000 banknotes produced in USA before WWII: 2.6 million
$5000-$1000 banknotes produced in USA before WWII: $1 billion worth
$1000 Canadian banknote retired on May 12, 2000, 2.8 million (recommended by RCMP)
1000 Dutch Guilder banknote in Netherlands in 2000 (worth €453.78):13.3 million
1000DM banknote in Germany in 1999 (worth €511.29): 93.5 million
1000DM banknote in Germany in 2000 (worth €511.29): 89.2 million
1000DM banknote in Germany in 2001 (worth €511.29): 43.7 million - bills turned in for destruction in anticipation of changeover
€500 banknote in circulation after 1 year : 166.9 million
€500 banknote in circulation after 7 years: 530.1 million
€500 banknote in circulation after 14 years: 613.6 million - DROP IN DEMAND mentioned in article
Last edited by PacoMartin; 02-01-2016 at 08:04 PM..
Since you can write a check, use a credit or debit card, use Paypal, or initiate an electronic funds transfer from your bank's web site, there isn't much need for large bills. 50 and 100 years ago, sure; today, not so much. So I would not start issuing more large bills.
Heck, people won't even give me change for a $100. They treat it like a check.
Since you can write a check, use a credit or debit card, use Paypal, or initiate an electronic funds transfer from your bank's web site, there isn't much need for large bills. 50 and 100 years ago, sure; today, not so much. So I would not start issuing more large bills.
Well a hundred years ago there was about $5 per person in Federal Reserve Notes and US notes circulating in the USA. Silver and Gold coins were still widely used.
About 47 years ago, the government started to get serious about removing people's total privacy with banknotes and introducing Anti-Money Laundering laws. Before WWII about $5.6 billion in "large denomination" banknotes were produced. There were about $4.6 billion in $500 and $1000 banknotes, and another $1 billion in $5000 and $10000 banknotes. At the time this was a significant amount of money. But by 1969 the federal reserve notes in circulation totaled $44.5 billion.
The first thing the government did is announce in 1969 that all bills higher than $100 that came into possession of the Bureau of Engraving and Printing would be destroyed. They were not demonetized or declared invalid, as money countries do, but eventually they became rare enough that they are held by collectors. It is believed that 95% of these bills (by value) were destroyed.
In 1970, the Bank Secrecy Act, the first major anti-money laundering law, was passed. Among other things the BSA required banks to (1) report cash transactions over $10,000 using the Currency Transaction Report; (2) properly identify persons conducting transactions; and (3) maintain a paper trail by keeping appropriate records of financial transactions.
The money amount has never been updated because of inflation. In 2015 $10,000 was worth the same as
$1,637 in 1970, which is not a sizeable amount of money for a major purchase (a modest car). Also since $500 today is worth less than $100 in 1969, proponents of cash insist the government should resurrect that $500 banknote.
Repeating my earlier statement in 1969 the federal reserve notes in circulation totaled $44.5 billion ($287 billion in buying power in 2015 according to CPI Inflation Calculator). Now the population is about 50% larger, but very few transactions use cash today. By the end of 2015 the banknotes in circulation from $1 to $50 total $297.50 billion in total value, similar to the inflation adjusted value of the 1969 total currency.
But the c-notes in circulation total a whopping $1,082.2 billion. Most of this trillion dollars is circulating overseas, for both licit and illicit purposes.
Quote:
Originally Posted by Larry Siegel
Heck, people won't even give me change for a $100. They treat it like a check.
There are 12.5 tons of $100 banknotes in circulation (10.8 billion pieces). As you pointed out, almost none of them are used for everyday transactions outside of Manhattan where $20's are probably cumbersome. The $500 bill would be more used as a "store of value". But most research shows that large denomination bills are heavily used by illegal businesses.
For instance if you wanted to keep a million dollars hidden in your house, the $100 banknote would mean the million would weigh 22 pounds. You would need a regular size wall-safe. If you had to store it in $20 banknotes, the weight would be 110 pounds. Now you would need a commercial size safe. In $500 banknotes it would weigh only 4.4 pounds. The line is drawn somewhat arbitrarily that banknotes no larger than $20 would be a serious inconvenience to legitimate commerce, but the advantages of transporting value with a $500 banknote would benefit illegal commerce, money laundering, human trafficking, drug smuggling, to an unacceptable degree.
Last edited by PacoMartin; 02-09-2016 at 01:36 AM..
Illegal money flows pose a massive challenge to all societies, rich and poor. Tax evasion undercuts the financing of public services and distorts the economy. Financial crime fuels and facilitates criminal activities from drug trafficking and human smuggling to theft and fraud. Corruption corrodes public institutions and warps decision-making. Terrorist finance sustains organisations that spread death and fear. The scale of such illicit money flows is staggering. Depending on the country, tax evasion robs the public sector of anywhere between 6% and 70% of what tax authorities estimate they should be collecting. Global financial crime flows are estimated to amount to over US$2tr per year. Corruption amounts to another US$1tr. Most of the effort to combat such illicit financial flows focuses on the perpetrators, the underlying criminal activities or on detecting illicit transactions through the banking system. Yet despite huge investments in transaction surveillance systems, intelligence and interdiction, less than 1% of illicit financial flows are seized. In this paper we suggest a different approach, one that would complement existing policies and make them more effective. Our proposal is to eliminate high denomination, high value currency notes, such as the €500 note, the $100 bill, the CHF1,000 note and the £50 note. Such notes are the preferred payment mechanism of those pursuing illicit activities, given the anonymity and lack of transaction record they offer, and the relative ease with which they can be transported and moved. By eliminating high denomination, high value notes we would make life harder for those pursuing tax evasion, financial crime, terrorist finance and corruption. Without being able to use high denomination notes, those engaged in illicit activities – the “bad guys” of our title – would face higher costs and greater risks of detection. Eliminating high denomination notes would disrupt their “business models”.
£50=$72=€64=60CHF
It seems funny to include the £50 banknote along with the €500 note, the $100 bill, the CHF1,000 note.
It seems funny to include the £50 banknote along with the €500 note, the $100 bill, the CHF1,000 note.
As an aside it also makes it easier to implement NIRP on accounts.
Taking big bills out of circulation due to "criminal activity" also hurts those that want to deposit their money in the "First National Bank of the Mattress".
Just seems a funny coincidence that all these countries want to retire their big bills due to crime just when the banks are going NIRP.
This is what is happening in Japan. The BOJ went NIRP.
http://finance.yahoo.com/news/effect...210000407.html
With concerns that deposit rates may go below zero, sales of safes are surging. The number of 10,000 bills in circulation in 2015 rose at the fastest pace in more than a decade, which may suggest households are hoarding cash
Same thing is going on in Switzerland with the franc.
Big jump in use of Swiss 1,000-franc bills - MarketWatch
Circulation of Switzerland's 1,000 franc note, among the largest denomination bills in the world, rose sharply last year after the country's central bank cut interest rates deeply into negative territory.
As an aside it also makes it easier to implement NIRP on accounts.
Taking big bills out of circulation due to "criminal activity" also hurts those that want to deposit their money in the "First National Bank of the Mattress".
This is, of course, the primary point. The basic fact that high denomination banknotes were increasing despite all evidence that safer means of payment should be replacing them has been obvious since the current banknotes were invented in USA in 1928. The idea of eliminating big bills to combat organized crime has been around for half a century. The USA called in the $500, $1000, $5000, and $10000 banknotes in 1969, and this article in 1976 expresses the same opinion.
From 1960-1990 US cash was about 4%-5% of GDP. Now it is well on it's way to 8%. In 2000 the national currencies of the 11 countries in the Euro zone were circulating 380 billion euros of banknotes, by the end of 2009 the ECB was circulating 800 billion euros of banknotes. By 2014 the ECB was circulating over a trillion euros.
Quote:
Originally Posted by May 1976 The Washington Monthly, Calling in the Big Bills by James Henry
A monetary detective finds a painless way to catch the taxevaders and cripple organized crime
Of the roughly $80 billion in paper currency now outstanding in the United States, over $21 billion is in
$100 bills. This means that there is one $100 bill for every man, woman, and child in the country.
The historical evidence is even more perplexing. You might expect that increased urbanization, the rise of
real incomes, the invention of credit cards, and the automatic withholding of taxes, union dues, and pension and medical fees would have reduced the demand for cash. Initially this reduction did take place. At the end of the Civil War, there was about $80 in currency in the United States for each $100 of demand deposits. By 1929 this ratio had declined to $15 per $100.
But then the ratio began to rise. By 1958 it had reached $25 per $100, and by 1974, $31.32 per $100, close to its 1895 level.
As long ago as the 19th century economist were suggesting that banknote have an expiration date so that money would stay in circulation. That idea has never been taken seriously as it poses huge practical problems. But it shows that thinkers were aware of the problem of keeping money moving.
The reality is that governments have found circulating high denomination banknotes to be extremely profitable because of seignorage. In particular it is like printing money if the banknotes are taken out of the country. Like the tobacco addict, governments kept printing more and more money even though the long term effects were dubious.
But now as zero and negative interest rates are becoming long term policies, the high denomination banknote is a direct threat to the objectives of ZIRP and NIRP. Faced with a plethora of potential fees, the mattress safe is beginning to look a lot more attractive to the average Joe. Governments are now beginning to balance the tried and true profits of seignorage against providing their citizens with a way to avoid NIRP.
Over thirty years ago, I tried paying my college tuition bill with cash. The college refused my money! Without paying via some type of check, I wouldn't be enrolled. (Would it be cynical of me to suspect they didn't trust their employees not to pocket some cash?) It mattered not when I pointed out that "this note is legal tender for all debts public and private." Too bad — it is what it is.
I remember paying about 1100 Dollars in 100 Dollar Bills as a part of my University Tuition/Fees and it was accepted. It was in 2005 in Texas. Nowadays I am not sure whether they take Cash or not. But Checks are accepted easily in all Universities.
Many 100 Dollar Bills are under circulation outside USA. Many times in Asian/African countries, salaries to Expats and Foreign workers is given in 100 Dollar Bills. Suppose a worker from Nepal is at a project in Malaysia or a worker from India is working in Ethiopia-he is getting paid in 100 Dollar Bills. All these big Dollar bills make him easy to bring to his home country in cash. People prefer paying in Dollars as it is widely accepted currency. People will find it very difficult to convert note bills of Ethiopia into Nepal for example. Students / Tourists from Asian / African countries also bring money in Dollars -100 Dollar Bills when they visit western countries. Try running a Bangladesh Bank Card in Texas and you will know why? Outside USA, 100 Dollar Bill is the most common Bill.
It is debatable that whether it helps American economy or not by having so many 100 Dollar Bills in circulation outside USA.
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Without paying via some type of check, I wouldn't be enrolled. (Would it be cynical of me to suspect they didn't trust their employees not to pocket some cash?) It mattered not when I pointed out that "this note is legal tender for all debts public and private." Too bad — it is what it is.
The Case for Eliminating High Denomination Notes
