ECB phases out 500-euro banknotes | Business | Economy and finance news from a German perspective | DW | 04.05.2016

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ECB phases out 500-euro banknotes

The days of the eurozone's highest-denomination banknote are numbered. The Governing Council of the European Central Bank meeting on Wednesday decided the 500-euro banknote would have to go by the end of 2018.

Meeting in Frankfurt on Wednesday, the ECB's Governing Council decided the eurozone's 500-euro banknotes would be done away with. It said the notes would be withdrawn from circulation by the end of 2018.

By that time, the central bank will have introduced safer versions of its 100 and 200-euro banknotes.

The production and issuance of the 500-euro bills would be discontinued, the ECB added in a statement, but outstanding bills would remain legal tender even beyond 2018. Such bills could always be exchanged at the national central banks in the euro area, the ECB stressed.

Right now, the fuchsia-colored banknotes only represent 3.2 percent of all paper euros in circulation, but they' used to cause quite a stir within the halls of the ECB - and across the eurozone. That's because despite their relatively low quantity, 500-euro bills make up more than a quarter of the value of all the euro notes in the world.

They're used by cash-lovers and criminals alike - and that's the problem.

The ECB had pointed out 500-euro banknotes are the bill of choice for money launderers, tax evaders and terrorism financiers. For people with nefarious intentions, it's easier to cover their tracks if their money stash fits into a briefcase rather than a large duffel bag.

For months, ECB President Mario Draghi had been hinting at a potential decision to phase out the banknote, which is one of the world's highest-denomination bills currently in use.

High denomination, low trust

But in Germany, where an estimated 79 percent of all transactions are conducted in cash, some see the ECB's move to eliminate the largest of the euro currency area's seven bills as an affront against cash payments and an underhanded ploy to loosen monetary policy even further.

"The abolition of 500-euro bills undermines confidence in the ECB," Clemens Fuest, the new president of the Ifo think tank in Munich, said in a statement. "It gives the impression that the main reason for the abolition is to push interest rates further into negative territory."

The debate over the utility of the big bills came as trust in the ECB plumbed all-time lows in Europe's largest economy. For those people who wish to hold large amounts of cash in case of an emergency - such as an unwanted monetary policy - the 500-euro banknotes had offered a convenient solution.

But for central bankers, consumers who squirrel away considerable amounts of paper money undermine their ability to control the flow of cash.

500-euro banknote

The 500-euro bill is decorated with images of 20th century architecture.

Mo money, mo problems

Indeed, most Europeans won't notice (or care) when the 500-euro note disappears. Rarely used in everyday transactions, the bill is so elusive it's been deemed the "Bin Laden" in Spain - everyone knows what it looks like, but no one's ever seen it.

The bills are graced with pictures of modern 20th-century architecture, including buildings and bridges, depicted in a purple color scheme.

Having fewer 500-euro banknotes surely means production of other banknotes will have to be ramped up. Austria's central bank chief, Kurt Pribil, told Bloomberg putting those additional banknotes into circulation could cost as much as 600 million euros ($689 million).