ECB expected to phase out 500-euro banknotes

Deutsche Welle
4 Min Read

The days of the eurozone’s highest-denomination banknote may be numbered. The Governing Council of the European Central Bank is meeting on Wednesday to discuss whether the currency area still needs 500-euro bills.
The fuchsia-colored banknotes only represent 3.2 percent of all paper euros in circulation, but they’re causing 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.

As a result, they’re beloved by cash-lovers and criminals alike – and that’s the problem.

The ECB points out 500-euro banknotes are the bill of choice for money launderers 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.

High denomination, low trust

But in Germany, where an estimated 79 percent of all transactions are conducted in cash, some see the ECB’s attempts 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 comes as trust in the ECB plumbs 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 offer 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. The ECB’s Governing Council will convene on May 4, and the matter of the 500-euro note is on the agenda.

Mo money, mo problems

Indeed, most Europeans wouldn’t notice (or care) if the 500-euro note disappeared. 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.

As the ECB considers phasing out the 500-euro bill, one factor that could tip the scales in the debate is the cost of getting rid of it. The most likely solution would be to simply stop producing the bill while letting time take care of the rest. Depending on the denomination, the average euro banknote lasts a few years before it must be replaced.

But having fewer 500-euro banknotes would mean production of other banknotes would 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).

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