Auf Wiedersehen to the €500 Note

The New York Times recently reported that the European Central Bank (ECB) has made the decision to phase out its €500 note, the highest denomination bill in Europe, by the end of 2018. The Bank's primary reason for the move cites an attempt to make illegal activities that thrive on the transfer of cash (such as money laundering, illicit trafficking and funding terrorist organizations) more difficult by restricting the amount of physical cash that one can store in one space. For instance, a standard briefcase can fit €5 million in €500 notes whereas it would require four more briefcases to carry the same amount held in €200 notes.

However the ECB might have ulterior motives in ending production of the note. One German economist has accused the ECB of artificially lowering interest rates through "negative interest", which charges banks for sitting on their money rather than lending it. With fewer €500 notes in circulation, it is possible that the banks will be persuaded into lending out more money to avoid taking the cost themselves. "It would be significantly more expensive for banks...to store lots of smaller bank notes," the German economist said.