First they came for the 500 Euro note

Back on the 2nd of February I discussed a disturbing development in the world of monetary policy and central bank action.

The use of high-denomination notes, in particular the €500 note, is a problem reported by law enforcement authorities,” according to a draft of the plans seen by the Financial Times. “These notes are in high demand among criminal elements . . . due to their high value and low volume.”

Well maybe not only criminals as this next bit from the Financial Times shows.

The €500 note, beloved by gangsters and Greek savers, is now being investigated for ties to terrorism.

So the official story is to tell us that it is being done to reduce crime and terrorism and if you want a job at the ECB all you need to do is to think up another excuse along those lines!

The ECB announcement

Yesterday there was a further announcement from the ECB.

It has decided to permanently stop producing the €500 banknote and to exclude it from the Europa series, taking into account concerns that this banknote could facilitate illicit activities. The issuance of the €500 will be stopped around the end of 2018, when the €100 and €200 banknotes of the Europa series are planned to be introduced.

What is an “illicit” activity?

There is an issue here and it comes from the FT quote above which mentions Greek savers. What was illicit about them wanting 500 Euro notes? Well they took the money out of the banking system and higher denomination notes are the easiest way of doing that. Indeed those the bankers who run the central bank will no doubt have noted that the money in fact has not gone back. The ECB still has to deploy some 69.1 billion Euros of ELA (Emergency Liquidity Assistance) in Greece and yesterday we got an update on the position of some deposits. From Kathimerini.

In March there was an 182.3-million-euro drop to 41.2 billion euros, while since July 2015, just after the government introduced capital controls, the decline has come to 6.6 billion euros.

The annual decline from a year earlier (March 2015) is 25.9 billion euros.

Is that the illicit activity the ECB wants to stop? After all in Greece a bank run caused trouble for it which is significant when you consider its small proportion of the Euro area monetary system. What about Italy for example where the new Atlas bank recovery fund is being used up at a rather expresso rate? There is also Portugal where even the Novo Banco turned out to be old school and caused trouble for the Bank of Portugal. If we see the problems raised by little Greece ( which are ongoing…) then adding even Portugal would give the ECB quite a headache.

Is the 500 Euro note used for crime?

The largest of the ECB national banks does not seem to think so. From the German Bundesbank annual report.

There is scant concrete information on the extent to which cash is being used to facilitate illicit activity……… the volume of notes devoted to such transactions is unknown and would be extremely difficult, if not impossible, to estimate.

As you can see the evidence simply does not exist which is awkward to say the least for those who parrot the establishment line. From Jon Henley in The Guardian.

€500 ‘Bin Laden’ banknotes to be axed

Indeed there is more.

The €500 note, reportedly so prized by criminals that it trades above its face value

You might have though that the Bundesbank might have spotted this or indeed the other national central banks as it says they have no evidence either. Still I suppose “reportedly” offers a get-out cause. Oh and I thought that Bin Laden was supposed to be no longer with us.

Evidence for my case

By contrast there actually is evidence for my argument that this is being done to protect the banks. From the Bundesbank again.

for instance in the wake of the Lehman crisis that broke out in September 2008……….between October 2007 and October 2008, the value of €500 notes in circulation went up by around €40 billion.

So the main driver of any extra demand for 500 Euro notes was fears over the banking system. Is that a new version of an illicit activity?

Why the 500 Euro note?

Back on the 2nd of February I explained why it was in the firing line.

It was only on Friday that I pointed out that according to Gabriel Sterne that via the 500 Euro note then you could hold the equivalent of one billion US Dollars in the smallest possible space. In case you are wondering it is 3 metres cubed as opposed to 12 in US Dollars, 16 in Japanese Yen and a bloated 21 in UK Pounds.

Negative Interest-Rates

Many of you will be thinking that any war on cash will start this way as access is withdrawn. It is also clear that this is being implemented by a central bank which has negative interest rates ( deposit rate of -0.4%) and via QE has driven many bond yields negative as well.

As you can see the world of negative yielding bonds has found something of a home in the Euro area and I hope Italain readers will forgive my wry smile at the reality of negative yields there. But wait it is not just government bonds anymore as Mario Draghi sends out his buyers to chomp like Pac-Men on corporate bonds as well.

Those who find themselves increasingly facing a world of negative interest-rates and yields are likely to find even a 0% return attractive. For central bankers as the Bundesbank points out this present a problem.

As long as cash exists, shortterm interest rates can never be pushed far into negative territory…….. Hence the existence of cash constitutes an effective lower bound for short-term interest rates.

Somewhere approaching -2% I think.


There is much to consider in this as of course most of us have chosen to use cash less and electronic money more. This has been illustrated by this from the boss of Mastercard in Business Insider.

“By the time we get to another generation, 30 years down the track, will there be any cash? I very much doubt it. The idea of carrying coins — 2p, 1p, 50p all cluttering up your pocket — it will be an anachronism. It will seem as antediluvian as carrying a pouch full of gold.”

I am not sure about a 500 Euro note cluttering up your pocket and he is obviously pushing his company’s line but the later example of contactless paying on London Transport is valid. But there is a world of difference between choosing to do something and being made to as all observers of human nature and behaviour will be aware of.

Also as the group pushing for negative interest-rates are usually those who advocate helicopter money there is a conceptual issue. More helicopters will be required for the drop! That I supposed will be badged as a boost for GDP. Also as the main store of large helicopters is the UK RAF that alternative route may be blocked next month.

Oh and in time there may well be another issue as Blake Lavak pointed out to me on Twitter.

to be replaced by the Euro 1000 banknote as soon as Draghi gets his beloved inflation, surely. Remember the lira.

Who would have thought that Pink Floyd would have written the central bankers theme song?

Money so they say is the root of all evil today.

Also how would they deal with Wu Tang Clan?

Cash Rules Everything Around Me
Get the money
Dollar, dollar bill y’all

That is before we get to the US $2 million album which is probably idealised and considered illegal by central bankers at the same time.


25 thoughts on “First they came for the 500 Euro note

  1. Hello Sahun ,

    I note (!) that the £50 pound note is not going to be made of plastic

    a sure sign of its demise ( at the hands of our Rulers )

    next will be the testing of the “bail in ” again .

    Who will stand up for us against the Banks ( who are still bust , and still WILL be after bail ins )


    • Hi Forbin

      I take your point about the £50 note something I see rarely as for foreign readers UK cash points give £10s and £20s . The argument for the £5 note going polymer was that they were getting over used and worn and there were not enough in circulation because of that although the fact most cash points don’t use them was probably as big an influence.

      If we scrap the £50 then the 100 and 200 Euro notes will presumably follow the 500 Euro note….

  2. When the time comes, and the need is there, I will pass onto you what I have learned about growing your own food.
    How you will protect it is up to you.

    • Anyone without a decent tin foil hat won’t be able to protect their food.

      I remember reading somewhere,that western society is normally 9 meals from chaos.

  3. Hello Shaun,


    ” As long as cash exists, shortterm interest rates can never be pushed far into negative territory…….. Hence the existence of cash constitutes an effective lower bound for short-term interest rates.

    Somewhere approaching -2% I think.”

    Wow, what next when that doesn’t work ?

    Frankly I wonder what the public will do when the interest on their ISA is even 0% let alone – 0.1% or lower . There will be stickyness there for a bit then comes the realization that savings pensions and the like , are going to be worthless , then the herd moves as one……

    There’s only so many £20 pound notes to go around

    not that it matters much , its the CB who issue the promissary notes , they can just with draw the £20 and issue another version ( maybe higher denomination ) and make your stash under the mattress worthless overnight !

    Is this just another push on the assets inflation button ? but if I can get a loan for even -0.1 % will I and others just wait until its -2% ? or -3% ? but silly me , this is another prop to the broken banking system we have . The Banks will never allow negative interest rate loans but this mean they will be gagging for negative rate savings …..

    and ofcourse I now know how they , the CBs , will work this out !

    Yay! go go go chicken !


  4. What I find incredible about all that is happening is that 90 plus percent of the population are oblivious to what is going on they are financially illiterate.
    The population in Scotland have become politically engaged by the SNP and many in England by UKIP unfortunately they march to the sound of the Beach Boys Breakaway

    I can breakaway to a better life where the shackles never hold me down …….

    They are totally missing the relevant issue that the greatest wealth transfer in history is taking place a robbery is in progress and they can’t see it they think that others are to blame and that the land of milk and honey follows independence/Brexit…..quite how the SNP can square independence while using another countries currency and staying in EU but breaking away from the UK is incredible….but the population is not educated or interested in the facts.

    I think the Banksters are testing the water with this to see the reaction….there will be very little,as you mention Shaun the populations have been educated to accept electronic money so must will think so what.
    However the elimination of cash would give total control to the Banksters and their acolytes the politicians and is perhaps the greatest threat to individual freedom in history.

    • ‘They are totally missing the relevant issue that the greatest wealth transfer in history is taking place’

      I’ve been out and about and thinking about your quote as above and it really rings true.

      People just don’t realise how they’ve been robbed.

      • Hi Dutch as opposed to being out and about I am hanging about waiting for a flight from Lanzarote back to the SNP s land of milk and honey.
        Can’t claim to be the author of the quote read it somewhere but it is exactly what is taking place

        • It is.The 1% have been getting richer post 2008 as net beneficiaries of CB support for the asset classes they typically hold.

          Working age households have generally had a completely different experience and have balance sheets that offer a different picture to that of their immediate forebears.

          Welcome back to a sunny UK.

  5. Using Shedlock’s law of central =banking unintended consequences.It’s safe to say the net result of this will be an even greater demand for cash,thereby undermining their main objective.

    Forevidence,please see dwindling velocity numbers ad nauseum post ZIRP.

    Utterly clueless.

    • Hi Dutch

      I saw what was a chart of money velocities across different nations. The UK and US ones fell first then the ECB later followed and whilst correlation does not prove causation it fitted quite nicely with QE. As to Japan well it added to it by falling faster after the additions to QE under Abenomics.

      Central bankers keep that quiet and try to use words like counterfactual as the equivalent of move along now, nothing to see here.

  6. Great blog as usual, Shaun.
    On April 20 the Senior Deputy Governor of the Bank of Canada, Carolyn Wilkins was interviewed by Maclean’s magazine. At one point she said: “Other countries who have deeply negative nominal interest rates, in Europe and more recently Japan, there may be time limits with respect to how long they can stay significantly negative because people may find it better to store cash to avoid that negative return. So far it hasn’t been a big issue, but when you look at the analysis that has been done by the bank, that would be a constraint to think about.” It is revealing that Kevin Carmichael, her interviewer, had not even mentioned negative nominal interest rates in his question; Senior Deputy Governor Wilkins brought them up herself.
    It seems that the ECB is bent on loosening the constraint that La Wilkins mentioned by getting rid of the €500 note. In Canada it is already way more difficult to store one’s wealth in cash than in the euro area, as the highest valued note is CAD$100, worth about €68. Assuming 2% inflation, the value of that $100 note will be under €62 in 2016 K€ just five years from now, but there hasn’t even been a hint from the Bank of Canada about bringing in a higher-valued banknote.
    Inspired by the Bank of England putting Jane Austen on the £10 note, the Bank of Canada is now engaged in looking for a woman to put on a Canadian banknote. I was pleased to see the woman I voted for, Manitoba-born novelist Gabrielle Roy, has made the final short list of 20. The US is also about to put a woman on one of their banknotes. While this is a change for the better, one can’t help but wonder if it is not also a bit of a sideshow, trying to divert the public’s attention from how much more difficult it becomes, year by year, for them to store any part of their wealth in cash should the need arise.

  7. Which will come first, the implosion of monetary policy or the complete banning of high denomination notes and, ultimately cash? I wouldn’t like to bet on that!

    It’s just another step on the road of monetary insanity.

    • ‘It’s just another step on the road of monetary insanity.’

      What we need is an even bigger dive into negative IR’s,because clearly,the reason cutting IR’s hasn’t worked so far is that the cuts weren’t deep enough.

      I predict that when we finally get to a -5% base rate,we finally be able to save ourselves from the jaws of poverty

  8. If you are seriously concerned that high-denomination are the preserve of gangsters and terrorists, especially terrorists, you don’t withdraw that note over two years, you wait until the banks shut on a Friday, and withdraw the note by the Monday.
    I don’t fear a cashless society, as other means, gold and other precious metals, for example, would be used as a store of value, and electronic currency would be so devalued that they’d be issuing something along the lines of these, never mind €500

    • Hi therrawbuzzin

      That even bits the trillion dollar coin! Remember that? It is good timing as there was this announcement today from the Reserve Bank of Zimbabwe.


      Sounds good doesn’t it? Anything else it does?

      “The Zimbabwe Bond Notes of
      denominations of $2, $5, $10 and $20 shall, therefore be introduced in future, as
      an extension of the current family of bond coins for ease of portability in view of
      the size of the USD200 million backed facility…………and at par with the USD”

      I tried to start a debate on Twitter about the implications for the US money supply but maybe that was too high brow.

  9. Paddypower are offering 9/2 for the demise of the euro in or before 2020. If this happens, I’d expect a high denomination DMark note to become the savers choice.

    • Hi ExpatInBG

      Yes as it was the Germans who pressed for the 500 Euro note back in the day. The actual denomination might provide some food for thought as of course the new DMark would soar and soar if conditions are anything like now. That could create more demand for the note which would make the DMark rise again.

      Oh what a tangled web if the Bundesbank had to slash interest-rates in response!

      • I had heard that the Bundesbank have ensured that they have printed enough Dmark notes, held in reserve, just in case.But don’t tell anyone!

      • The new DM to soar – or the Rest Of The Euro to freefall. I’d predict a new DM would be fairly stable vs USD, but I’m less bullish about GBP’s prospects against a hard DM.

  10. Meanwhile , in sunny Switzerland, there are no plans to withdraw the CHF 1000 note,my Post Office banker told me.

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