The Future of Cash: Radical Plans and Digital Transition
A concerted campaign was launched on both sides of the ocean to phase out high-denomination banknotes and to eliminate cash circulation in general. What is new is that for the first time, financial big guns, including former US Treasury Secretary Larry Summers and the co-chairman of Deutsche Bank, John Cryan, have stood behind the radical plans. According to the latter, cash may disappear within a decade (!), which could open a new era in the four thousand-year financial history of mankind. In media communication, cash appears as a servant of lawlessness, but analysts admit that from the transition to digital money, governments expect huge revenues and a central influence on the financial decisions of citizens. However, there are – few – who believe that one of the last islands of personal freedom may be lost.
In a speech to the world’s top bankers in Davos in January, John Cryan claimed that financial technologies are developing so quickly that “in a decade we will probably not see cash anymore.” According to the co-president of Deutsche Bank, “cash is inefficient, so it needs to be ‘dematerialized'”. According to him, governments are also interested in this, because “transactions will be traceable”, and this can prevent illegal transactions and money laundering.
Summers Advocates for Eliminating High-Denomination Banknotes
Former US Treasury Secretary Larry Summers, who wrote an article in the Washington Post entitled “It’s Time to Kill the $100 Bill”, also argued for the suppression of the underworld, terrorism, corruption, tax evasion, and crime. Summers, who is currently a professor at Harvard University, urges a global decision to eliminate high-denomination banknotes.
He recalls that already in the 1990s when the euro was being planned, he warned that a denomination of no more than 100 euros should be used when issuing the new currency.
“I also told this to my colleagues in the Council of Finance Ministers of the European G7 states. I warned them that issuing the €500 note was extremely irresponsible and that we were only promoting corruption and crime. Of course, the euro is not our currency, but the problem already affects us. However, the Germans insisted on large denominations, so this issue was never seriously discussed in international forums”
Proposal to Withdraw High-Denomination Banknotes
Wrote Summers, who believes that now is the right moment for a breakthrough not only in Europe but on a global scale. Therefore, he recommends that a decision be made at the same time on the withdrawal of the 100 dollar, 500 euro, and other high-denomination banknotes in international circulation.
One of Summers’ fellow professors, Peter Sands, would also abolish the 100 and 200 euro banknotes, citing that the British are also satisfied with the 50-pound banknote as the largest denomination. According to Summers, the European Commission and the President of the European Central Bank, Mario Draghi, support the idea. The European Commission published its action plan on the fight against the financing of terrorism at the beginning of February, and Mario Draghi promised the ECB’s report on the planned withdrawal of 500 euro banknotes by May. “The 500-euro notes are increasingly used as a tool for illegal activity,” argued Draghi in the European Parliament, stressing that this move has nothing to do with reducing cash.
High-Denomination Banknote Concerns
Looking at the sheer numbers, financial executives’ concern is understandable. The amount of cash in the Eurozone is constantly increasing, last year it already exceeded 1,000 billion (1 trillion) euros, 30 percent of which are 500-euro banknotes. These denominations do not appear in everyday currency, and according to a survey, 56 percent of European citizens have never held such a banknote in their hands.
In absolute terms, only one banknote is more valuable than the 500 euro note: the Swiss 1,000 franc. (The former is converted to about HUF 155,000, and the latter is worth HUF 280,000.) The demand for 1,000 francs increased after the 2008 global economic crisis, even though you cannot buy much with this denomination even in Switzerland, except for some high-end jewelry – and a watch shop. Today, 60 percent of the total Swiss franc stock is made up of 1,000-franc banknotes.
High-Denomination Banknotes
Demand is so high that, according to the Economist, European criminal groups are willing to pay more than face value for it, one reason being that a paper note is worth 22 times more than the same weight of gold. Although the European Union is trying to get Switzerland to cooperate in this matter, as with bank secrecy, the Bern and Zurich-based Swiss National Bank has indicated that it does not intend to withdraw the thousands.
The reserve function is really clear for these high-denomination and valuable banknotes. With the European interest rate around zero (the ECB just lowered the base rate of the euro to 0.00 percent at the beginning of March), many people decide to keep their savings (or part of it) in cash, even if it is riskier because the bank deposit now has a yield no, just the cost.
This is a completely legal financial solution, but it is not beneficial at all from the state and bank point of view, since it does not bring them any income, and the owner of the money decides when and what to spend it on.
It is understandable that in articles arguing in favor of withdrawal, savings are regularly lumped together with the – undoubtedly existing – underworld use. Due to the lack of data, it is not even possible to estimate how much of the EUR 300 billion 500 banks is hidden in the pillowcase, and how much is circulating in underworld hands.
