The Next Capital Control: Banning The €500 Bill

Tyler Durden's picture

As SF Fed's John Williams notes (here), cash is king, but the strange thing is that while credit/debit transactions rise exponentially, the cash in circulation is also rising at a rapid pace. So where does all the cash go? The short answer is into large-denomination bills and out of the country by his findings. While low denomination bills suffer (as we discussed here) it is worth asking who is 'hoarding' the $100 bills? This is the question that BofAML asks in Europe as the huge EUR500 Bill (the developed world's highest value note in circulation) remains in great demand (apparanelty by shady offshore types). This is not good news for the central banks of the world as they run dry of monetary policy tools to drive velocity in money (or spending).

BofAML's proposal: Ban the EUR500 Bill; force those shady people who 'stack' these high denomination bills to spend that money into circulation. This would appear to be the latest 'capital control' strawman, 'floated' to eliminate the people's right to keep cash segregated from a banking system and out of broad electronic circulation. So in both the US and Europe, high denomination bills are being hoarded (or exported to 'safe' havens) as Williams notes, "around the world, during periods of political unrest or war, cash - especially the currency of a stable country... - is seen as a safe asset that can be spirited out of harm’s way with relative ease."

This, of course, is not what the elites want - and we suspect a "ban the EUR500 Bill" legislation will be coming soon to the EU Commission.

The US Fed is worried about it (pdf here)

According to one estimate, the share of U.S. currency held abroad rose from about 56% before the tumultuous events of the past five years to nearly 66% in 2012. The chart below shows the surg ein high denomination notes dominates the low (sub-$50) deonomination for currency in circulation...

And so is Europe...

Via BofAML, Time to get rid of the €500 bill?

Demand for the euro as a store of value has started declining. We use the demand for the €500 bill, which is by far the highest currency denomination in G10, to document this trend and argue that it could eventually weaken the euro.

Although the ECB has no plans to remove the €500 bill from circulation, we argue that it should do so. It will weaken the euro, supporting the economy. It will address concerns that the bill is primarily used to hide illegal income. More importantly, we propose a scheme in which the removal of the bill will be a tax on illegal income, allowing using the proceeds to address the periphery crisis.

The €500 bill is by far the highest currency denomination in G10 and one of the highest in the world (Chart 1). Its issuance started with the introduction of the euro banknotes on 1 January 2002.

An ECB study suggests that only one-third of the €500 bills in circulation are used for transaction purposes. The remainder is used as store-of-value.

But who is 'hoarding this store of value' outside a bank?

Holding large amounts of “mattress cash” to store value outside the banking system raises many questions. A number of banks in the Eurozone remain weak after the global and Eurozone crises, but European banks were considered to be strong and enjoyed the public’s confidence in the pre-crisis years. Indeed, some evidence suggests that the €500 bill is popular with criminals and tax evaders:

  • Money exchange offices in the UK stopped selling €500 notes from 20 April 2010, because of their use in money laundering. Indeed, according to the Serious Organized Crime Agency, 90% of all €500 bills sold in the UK are in the hands of organized crime.
  • According to the New York Times, one fourth of the €500 notes in 2006 were in Spain, despite a GDP of only 11.5% of the Eurozone’s GDP at that time. This may have to do with the large share of the underground economy in the country. The Spanish public had nicknamed them “Bin Ladens”, as everyone knew they were there, but nobody had ever seen them.
  • Reports suggest that the police in various countries use the bill to track money laundering.
  • Other countries have removed large denominations because of such concerns. US President Nixon issued an order in 1969 discontinuing the US$500 bill as a way of combating money laundering by organized crime. Canada withdrew C$1,000 bills in 2000, because of growing concerns over their use by organized crime.

The fear is that the drop in demand for EUR500 bills reflects on the more general decline in the demand for the euro as a store of value...

And we can't have that... so...

and BofAML's Suggestion... Plan....

Time to get rid of the €500 bill?

Despite no plans by the ECB to remove the €500 bill from circulation, we see a number of benefits if it does so. It will reduce the demand for euro to store value, which will weaken the currency helping the Eurozone economy recover from its continued recession. It will address concerns about the use of the bill to hide income from illegal sources. And, more importantly, removing the €500 bill from circulation can help raise substantial revenue by taxing illegal activity, based on a scheme that we describe below. Consider the following:

  • The public has only a month or so to deposit all €500 bills in a bank, after which the bills become worthless. The deposit can take place only in a European bank, in Europe or abroad.
  • Depositors will have to present evidence of legal income sources for deposits of €500 bills above a specific amount, let’s say €10,000– such requirements are already in place regardless of the currency denomination of new deposits.
  • All €500 bills that are not deposited in a bank within a month or are not justified by legal income sources become ECB profit.
  • The Eurozone can then use the proceeds to recapitalize banks in the periphery, capitalize the ESM and/or reduce the periphery’s sovereign debt burden.

We believe that the revenue raised in such a scheme could be sizable. The value of €500 bills amounted to €290bn in February 2013. If most of it cannot be justified by legal sources, as our discussion above suggests, the Eurozone can raise a substantial amount of funds to help address the ongoing periphery crisis. For comparison, the capital of the ESM is €80bn. Moreover, the scheme will be politically popular, as it will be equivalent to a 100% tax on €500 bills resulting from illegal activities and tax evasion. We have seen nothing to suggest that the ECB and the Eurozone authorities have ever considered such a scheme, but we believe that it would be a win-win idea.


And so there it is, the strawman for the latest cash-liberating capital control for the world's safe-haven seeking cash hoarders...

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Motorhead's picture

Banknotes, bitchez!  (Well, not really.)

spastic_colon's picture

or just trade them in for 5 100's

Cognitive Dissonance's picture

Yes....but for most people that means showing up at an official money changer (aka "bank") and exposing your hoard to official eyes. This is a classic technique to flush out the black market "savers".

<Of course 'connected' people will use the private back door.>

Pool Shark's picture



Isn't it amazing that the US Dollar isn't even backed by paper anymore?...


Ghordius's picture

please don't blame the EUR for it ;-)

meanwhile Bank of America Merril Lynch seems to hate our paper money

I wonder how people would react to Nomura asking for the ban of the $100, $50, $20 and $10 Dollar bills

suddently the distopian vision of megabanks only giving credit to those who allow an implant and private headhunters going after non-implanted humans is not that strange, anymore...

Spider's picture

Did BOFML really suggest ONE month to deposit all $500 euro bills AND a record of where the income was coming from?  And that people would be "happy" since they will assume its all money-laundering and illegal activities?

What a stupid idea!  This is a suggestion you'd find a ditsy sorority girl suggest in an econ101 course. 

Ratscam's picture

dont see the swissies on the list with their chf 1000 bills, roughly 800 euros.
you can actually pay with it at a conveniant store buying a six pack of beer.
never the less i prefer carrying the lower denominations such as the 200 bill.

Boris Alatovkrap's picture

If shortage, maybe Fed is can post PDF for Open Source printing?

BigJim's picture

Is there no end to their bullshit?

  • The public has only a month or so to deposit all €500 bills in a bank, after which the bills become worthless. The deposit can take place only in a European bank, in Europe or abroad.

and how long before they ban the €100 for the same reasons? Then the €50? 

  • Depositors will have to present evidence of legal income sources for deposits of €500 bills above a specific amount, let’s say €10,000– such requirements are already in place regardless of the currency denomination of new deposits.

And if you can't present evidence, you can just give your banker a bit of a backhander to sign the form saying you actually did. 

  • All €500 bills that are not deposited in a bank within a month or are not justified by legal income sources become ECB profit.

Yes, because why shouldn't the ECB confiscate any money you can't 'prove' is yours? That'll teach you to withdraw 'your' money!

On first glance it's easy to see why BTC has been going apeshit.. but why haven't PMs? And then it's obvious - suppress the traditional  store of value (PMs) while using limitless fiat pockets to create a BTC price bubble, which can then be crashed at will... thus destroying confidence in BTC and PMs as alternatives to 'official' currency.

godzila's picture

Probably for the author Switzerland is not a developed country... As for paying in convenience store with them it's not really as easy as you would imply but certainly doable.

Doña K's picture

You just need a larger suitcase. That's all.

Politicians should solve the problem. Not the consequence of their actions. Bloomberg banned large sodas and now people buy two smaller ones.

These guys can't see beyond a few feet.


HoofHearted's picture

I'll bet there are some of the homeless on the streets of Madrid who could walk into a bank with fifteen 500 euro notes, walk out with seventy-five 100 euro notes, and be paid by one of those for the transaction. Underground economy, bitchez!

Panafrican Funktron Robot's picture

"All €500 bills that are not deposited in a bank within a month or are not justified by legal income sources become ECB profit."

If the ECB is suddenly more flush with cash that was previously not in their possession, while maintaining the same euros in circulation number, to be utilized for more bank propping, wouldn't this be largely a EUR strenghthening scheme?  No wonder B of A loves it.  They like cheap USD.

Pseudo Anonym's picture

e100's will now trade at premium

or just trade them in for 5 100's

knukles's picture

Well, there's some debate about Velocity and large banknotes not taken into complete consideration.
That being at the tip of the spear, suitcases and envelopes full of money utilized for drug, arms and other under the table financial transactions simply do not disappear form existence.
And as such are not lost to the level of real economic activity (As opposed to reported economic activity.)
Say Max the arms dealer sells a whole bunch of AKs to the East Slumberland Revolutionary Council, and receives cash for it, he usually doesn't sit on the cash and do nothing... as in creating both a lower reported and real "V". 
He will in turn take that cash, buy more AKs and sell them again, the producer or provider of the AKs in turn recieveing cash in lieu of MatserCard or AMEX payments and so the economic cycle continues.
The difference being while one is unreported, the other is reported but both effect real economic activity.
Indeed, the underground economy usually does not depress actual "V" but the transaction goes unreported thereby depressing reported "V".

Thus as the proportion of cash unreported economic transactions increases, so too the "reported" "V" decreases.  But only because it is not counted!

Further, as unreported cash transactions, aka the black market, the economic exchanges are not taxed, either. 
And it is this latter matter which worries politicians more... for there are tax receipts being lost to the system.... Just like putting money in an "unreported offshore banking account" where earnings thereupon and estate taxes, etc., are not realized.

Moreover, politicians are the last folks who really and truly want to do away with large denomination bills. (Or off shore accounts.)

How else are they to receive their influence payments?
To wit: The current scramble in France to report all "assets".
Where the fuck you think that shit comes from in them accounts?

The Law of Unintended Consequences is a Bitch

Hongcha's picture

China has done this successfully for years by pegging the Yuan to a 100 Yuan note (exchanging around $15.50 last I checked).

This makes it difficult for the little fellow to move much cash; whereas the elite in control can move whatever they wish.

This is a capital control, but it is for the untermenschen, the prole ... not people in or with power.

Carl Spackler's picture

Your observation is noteworthy.

It is a capital control, but when you multiply the cash in hand, which could be transferred by 1.2 billion people (the remainder is the number of wealthy elites in china), then you realize that capital can simultaneously flow outward, very, very quickly, and put the Chinese elites in a world of hurt.

Sudden Debt's picture

Only saw one when the euro started.

Nobody has seen any ever since.

Rumor are they all went into spain into their real estate bubble.

And no store accepts them so why bother.

erasing the 500 bill is just to get the grey money out of the wall.

PontifexMaximus's picture

I see every day an awful lot of them. People in Italy and in the Reich like it very much!

SilverIsKing's picture

I saw one in Rome a couple of weeks ago.  A guy flashed one to a woman working in a cafe like it was something special.  I didn't realize the significance at the time.  Maybe he was trying to pick her up.

Doña K's picture

Walk into any exchange kiosk at the major airports outside the EU and you get as many as you want, as the Europeans traveling outwards carry mostly 500 euronotes.   

Bearwagon's picture

Right, it's oh-so widely accepted ...    (NOT)

duo's picture

Fair enough.  But when we need $500 to buy a carton of milk, would you agree 5 $100 bills are more convenient than 25 $20 bills?

HedgeAccordingly's picture

funny we are back to 2013 highs.. despite BITCOIN being 240 lol - 

fonzannoon's picture

Red money here we come bitchez!

Joebloinvestor's picture

Go ahead and try to change/spend one of those E$500 notes.


I went to a French bank with a friend who had an account at the bank and they would not accept it.


I had to go to a currency exchange to break it up.


Carl Spackler's picture

Good. Convert your wad of 500 Euro notes. 

Take the mugging in fees, but then transfer the other currency out to a safer destination/system, where you can convert to other asset classes to store your wealth.

Third world elites have been masters at this technique for more than a century.

urbanelf's picture

Forcing people to spend!  What brave new economic paradigm is this!

PontifexMaximus's picture

Swissie CHF 1000 is higher

Sudden Debt's picture

yeah... try to exchange those abroad...
tthere's a hunt for swiss currency right now.

FeralSerf's picture

Approximately 60% of the entire value of all Swiss bank notes in circulation are made up of notes of 1'000 CHF denomination.

Urban Redneck's picture

Nice to know I don't live in the developed world according to the retards at BoAML...

Ratscam's picture

love your sexyläuten city logo

Urban Redneck's picture

One standard from each home canton, but I actually live in a gulch outside of town- something about defensible deconstructable bridges which are usually constructed over constant creeks.  Fortunately my neighbor's collection of cocks never waits until sunup in case I need to make an early 20 mintue commute to the nearest tarmac and get to the other home.

(That's for making me pull out the Langenscheidts, and even then having to think...)

Ratscam's picture

that,s what ZH and life is all about, to think ...,love your Langenscheidt response, it took you quite a while i guess ;)

Urban Redneck's picture

It was a self-evident compound (based on the context) of two simple words with known meanings, however, I bought my monsterbox dictionary set in the late 1980's, so there was a huge amount of irrelevant and repetitive constructions that I wound up reading.  The flexibility of the modern English language is that anyone is free to take two words and slap them together (as along as everyone else can derive the meaning) so they tend to use related words like electronic & mail, in German there seems to be a predilection for combining short simple words into longer words whose meaning is somewhat different from the root words.  Of course I could always pay CHF 386 for a new dictionary, but then I would have to go read the Abfallkalender and figure out what category the old monsterbox dictionaries go in - paper or cardboard?  I think I'll just be happy with what I have for the time being.  

ebworthen's picture

"OMG!  People not putting their money in the banks but on their person! 

This must stop!  We must end paper currency! 

We must go all digital so we can control it and tax it (and confiscate it)!"

I can hear it now, all the way from Brussels.

McMolotov's picture

That's exactly what I'm thinking, too. There's so much interference and meddling by these "deep thinkers." They're creating a Rube Goldberg Contraption of epic proportions, and it will unleash hell on earth when it ultimately collapses.

Then they'll use that as an excuse to consolidate power even further.

SwimmininNawlins's picture

We must go all digital


Like BitCoin?

Ghordius's picture

That was not Brussels asking, that was a US megabank - just to realize how brazen they have become...

OutLookingIn's picture

Must. Eliminate. Competition.

Everyone. Must. Use. US dollar.

Save. Reserve currency status.

Attack. Large denomination Euros.

Force usage of US dollar large denomination. 

chdwlch1's picture

Every Euro or Dollar privately held outside of the banking system equates to 10X the face value to the bank via fractional reserve rules.  The currency withdrawals also mess up their reserve requirements to loans outstanding and create the need for more deposits.  It's also a way for governments to collect what they feel are their fair share of taxes (you see, it's not their spending that is the problem, it's that they aren't collecting enough in taxes!?!?!?).  All this says to me is that the fallout from the Cyprus confiscations is much worse than they are letting on and the egregiously over-levered banks are feeling the pinch. Oh, what a tangled web they weave!

BigJim's picture

Good points! But actually, the amount of 'money' leveraged off cash is a LOT higher than 10x

Sudden Debt's picture

they just want to be able to say that all that money is destroyed in a fire.

that's why it's so lucrative to change your banknotes.
There's a lot that went lost in circulation.

And than they can just print it. So they actually hope nobody turns them in.

Dr. Engali's picture

I have an idea...stop the war on capital and wealth creation and people might just spend a little.

knukles's picture

Please let the Obozos know.

Smegley Wanxalot's picture

How about just banning net worth altogether? 

Force those evil people who plan for their future to spend NOW!

In fact, they should legally force people who have saved to SPEND IT ALL NOW and also GO INTO DEBT UP TO THIER ASSES so they can know how it feels to be like everyone else whom they are cruelly depriving of their saved hoardes of capital!


Doña K's picture

I think that they will put expiration dates on banknotes. Then a black market of exhanging late expiration to newer expiration notes will emerge so that when I buy an expensive item, I would exchange my long expiration notes with those who expire within a few days and get my 20% discount.

Ain't that great? 

kito's picture

ive been reading lots of shtf fiction, oodles of practical knowledge comes from them....anybody have any solid recommendations????