Thu | Sep 20, 2018

ECB to halt production of €500 bills

Published:Friday | May 6, 2016 | 12:00 AM
In this September 1, 2001 file photo, Aline Heurley from Flensburg looks at a 500-Euro bank note in front of a poster at the branch office of the German Federal Bank in Flensburg, northern Germany. (AP Photo/Heribert Proepper, File)

Production of the €500 banknote is being discontinued amid concerns it had become too popular among crooks and money launderers.

The European Central Bank (ECB), the monetary authority for the 19 countries that use the shared currency, made the decision at a meeting on Wednesday.

The ECB said it was taking into account concerns that the banknote, which is worth around US$580, "could facilitate illicit activities".

The banknotes currently in circulation will remain legal money for now, but no additional ones will be issued from existing stocks after late 2018.

The central bank assured that the bills could be exchanged at national central banks of euro-member countries "for an unlimited period of time".

The €500 bill - the biggest denomination for the euro - is not often seen in day-to-day circulation, and some merchants don't take them. An ECB survey found that 56 per cent of respondents said they had never seen one. Yet they make up around 30 per cent of cash euros in circulation and have turned up in money-laundering investigations.

One reason, according to EU law-enforcement agency Europol, is the ease of transport: A million euros in €500 bills weighs 2.2 kilogrammes, or just under five pounds, and fits in a laptop bag.

Using €50 bills, the same million would weigh 22 kilogrammes, or 48 pounds, and would require an inconveniently bulky suitcase.

A Europol report says that criminals like them so much they occasionally change hands above their face value in the underworld.

When cash euros replaced national notes and coins in 2002, the €500 bill was worth roughly as much as the largest German bill then in circulation, the 1,000-mark note.

Economists in cash-friendly Germany have criticised proposals to discontinue the large bill.

Clemens Fuest, head of the Ifo research institute, argued that getting rid of large bills in theory makes it easier for the central bank to impose even deeper negative interest rates, by making it harder to keep large amounts in cash.

Even if that never happens, "the abolition of the €500 bill undermines trust in the European Central Bank," Fuest said in a statement on Wednesday. "It leaves the impression that the main reason ... is the intention to push rates farther into negative territory."

The United States stopped making new US$500 and US$1,000 bills during World War II. Their main use was for bank transfer payments, a need that disappeared with more secure technologies, according to the US Treasury Department website. The largest US denomination is US$100.