ECB poised to make the €500 note extinct

€500 notes

European Central Bank (ECB) governor Mario Draghi confirmed that the bank may ditch the €500 note, as there is an “increasing conviction in world public opinion” that such notes were used for criminal purposes.

Draghi made the announcement in an address to the European Parliament (EP) in Brussels. “The €500 note is being viewed increasingly as an instrument for illegal activities,” he said. “It has nothing to do with reducing cash.”

He added that savers would not be penalised by the demise of the high-denomination note – equivalent to £386 or US$560 – and could use the €200 bill instead to hold their cash.

The amount of cash circulating in the eurozone rose above €1 trillion last year, with almost 30% of the amount in €500 notes, reflecting investor fears over the soundness of some banks as well as frustration with low returns on savings. However, European police agency Europol reported last year that many retailers decline to accept €500 notes.

Cash hoarding has become more prominent in Europe since the 2008-09 financial crisis. In Greece, where capital controls have been imposed to prevent large withdrawals, savers have hoarded notes after major depositors lost money in the country’s financial bailout.

European finance ministers have called on the ECB to review ways to tighten access to €500 notes as part of a move to cut funding of criminal and terrorist activity.

However, withdrawing it is likely to prove politically controversial in Germany, where many consumers still prefer cash to electronic money, even for ‘big ticket’ purchases. The country supported the inclusion of a €500 note when the single currency launched to replace its 1,000 deutschmark note.

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A European Union (EU) flag flies outside of the headquarters of the European Central Bank (ECB) in Frankfurt, Germany, on Wednesday, Aug. 1, 2012. As Denmark experiments with official interest rates below zero, European Central Bank President Mario Draghi is getting a glimpse of how extreme monetary policy decisions play out in real life. Photographer: Hannelore Foerster/Bloomberg
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