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Goodbye to the bill?

Dirk Kaufmann / adJune 7, 2013

Most people have not actually held a 500-euro note in their hands - and they may never, if those promoting its removal from circulation have their way. The banknote has gained a bad reputation due to illegal activity.

500-euro note being passed from one hand to another (c) dpa - Bildfunk
The 500 euro note is pink in colorImage: picture-alliance/dpa

The most valuable euro note is known to most people only through television. While criminals paying for illegal drugs or stolen goods may rustle through 500 euro notes as they count them out, the bills rarely play a role in everyday life. Holidays are paid via credit card and new laptops with bank transfers. It seems that honest folks don't need a 500 euro note.

Of interest to criminals?

This is certainly the view of Britain's Serious Organized Crime. Although the UK doesn't belong to the eurozone, the unified currency does play an important role at money exchange offices and banks.

Also for criminals. Britain's Interior Ministry estimates that 90 percent of customers who request the large note are criminals. Banks and exchange bureaus have reacted by giving out only 100- or 200-euro notes.

Experts in Germany share the view that the large-denomination note is widely used for criminal purposes. The German Federal Criminal Office would neither confirm or deny this view, and rejected a request by DW for an interview.

Drug money - money mattresses

The debate over abolition of the purple banknote was rekindled in April. The vice president of the European Central Bank (ECB), Vitor Constancio, made headlines when he suggested to the European Parliament that the 500-euro bills could eventually be phased out.

Hand with euro notes and nearby coins (STR415-031201)
Most people wouldn't even miss the 500-euro noteImage: picture-alliance/ZB

However, this comment is currently the only indication that the ECB may decide to take this step. A spokesman declined to comment on the issue.

Economists like Hans-Peter Burghof of the University of Hohenheim sees the bills as a service of the ECB for citizens who don't trust the banking system. In an interview with Deutsche Welle, he said: "There are people who prefer to have their money in cash, and not at in the bank." The state should stay out of this practice and allow it to continue, Burghof said.

Bremen-based economist Rudolf Hickel believes there was a touch of naiveté in the launch of the largest euro note. "They didn't think about what might be going on with the purple note," he said.

The two economists agree that the bill fulfills a dual role: as money to stick into mattresses for people who prefer to keep their savings at home, as well as a means of payment for people who have something to hide.

Hoarding cash

If banknotes are hoarded at home and the money taken out of circulation, of course it's no longer working, in the sense of earning interest or being used in the wider economy.

Helmut Rittgen, who is head of the cash department of the German Central Bank, in a speech in October 2012 estimated that up to 30 percent of all cash is kept out of circulation. He noted that in the wake of the financial crisis, demand had soared for 500-euro banknotes - not as payment, but rather as a means of storage. The large bills take up less space than the smaller-denomination notes, so large fortunes can be kept in a smaller space.

Also with tax evaders, Hickel told DW, the bill is popular: "If briefcases are carried across the border, it is of course easier to pack 500-euro bills."

Burghof as well said that the bill is often used by people who have shady businesses and who want to avoid garnering attention.

Man in suit holding out money bills © granata68
Cash is untraceable and thus the preferred method of payment for illegal activityImage: Fotolia/granata68

Unexpected surprise

Were the 500-euro note to be taken out of circulation, then they would have to be changed for 100- and 200-euro notes. Hickel finds this an interesting prospect: "What fascinates me is this exchange process."

Because of money laundering laws, citizens must prove a legal origin for large amounts of money. Hickel is convinced that the majority would in fact not get changed into smaller notes because it probably has an illegal source.

Taking the large note out of circulation should therefore not be publicized, said Hickel. The longer elimination of the 500-euro note is discussed, the greater the opportunities for criminals to re-launder the money.

Burghof agreed: "To abolish the 500 euro note would works best if it comes as a surprise."