Author Topic: Why 'Bin Laden' Euro Notes Should Be Abolished  (Read 3410 times)

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Offline Coinsforever

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Why 'Bin Laden' Euro Notes Should Be Abolished
« on: April 11, 2013, 12:47:29 PM »
Why 'Bin Laden' Euro Notes Should Be Abolished



Demand for 500 euro bills as a store of value has started to decline, according to a currency strategist at one of the world's largest banks, who told CNBC that the note is used extensively for criminal activity and should be abolished, with the proceeds used to recapitalize European banks.
"Since the euro zone crisis has started we have seen a decline in demand for the bill which suggest a decline in the demand for the euro as a store of value," Athanasios Vamvakidis, forex strategist at Bank of America Merrill Lynch told CNBC.

The notes are known jokingly as "Bin Ladens" in Spain due to the fact that they can't easily be found in circulation because they are used to stash money from the taxman.

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Vamvakidis said the 500 euro bill, the highest euro denomination available, represented 33 percent of the total value of euros in circulation, compared to 13.7 percent when it was first introduced.

"What we're proposing is to abolish the bill. Now if you do this, you will weaken the euro - given that one third of the euro are in this bill - this is good for the economy."

Evidence suggests that a lot of the bills are used used to hide income from illegal sources, criminal activities or tax evasion, according to Vamvakidis.

In 2010, bank wholesalers in the U.K. stopped supplying the note after a request from the Serious Organised Crime Agency (SOCA). Ninety percent of U.K. demand came from criminals, according to evidence from SOCA. People are still allowed to bring it into the country but it is no longer available over the counter.

Abolishing the note can be done in a way that can tax illegal activity, Vamvakidis said. More large deposits would also help recapitalize struggling euro zone banks and Vamvakidis said that all bills that are not deposited within a month, or are not justified by legal income sources, would then become European Central Bank (ECB) profit.

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"The way to do that is to give a short period of time for people to deposit this bill into a bank and exchange them and after this to completely abolish the bill," he said.


"If you do that and you give a short enough time. You don't give enough time for criminals to clean up this money...this is the equivalent to a 100 percent tax on 500 (euro) bills that store illegal income. You can use this money to recapitalize the banks in the euro zone, to increase capital for the ESM (European Stability Mechanism)."

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The value of 500 euro bills amounted to 290 billion euros in February 2013, according to research by Bank of America Merrill Lynch, and it believes that revenue raised in such a scheme could be sizable.

"We have seen nothing to suggest that the ECB and the euro zone authorities have ever considered such a scheme, but we believe that it would be a win-win idea," Vamvakidis said in a research note.

—By CNBC.com's Matt Clinch
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Offline chrisild

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Re: Why 'Bin Laden' Euro Notes Should Be Abolished
« Reply #1 on: April 11, 2013, 01:12:45 PM »
Maybe there is a reason why such suggestions regarding euro notes come from a "forex strategist at Bank of America Merrill Lynch". Personally I do not need €200 and €500 notes, but whenever people from outside the euro area tell "us" what to do or not do, I wonder what the motivation is ...

Christian

Offline Figleaf

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Re: Why 'Bin Laden' Euro Notes Should Be Abolished
« Reply #2 on: April 11, 2013, 02:07:01 PM »
I would agree that the €500 and €200 notes have a very limited role in the economy. You will have trouble spending them in many, if not all euro countries. In the euro countries where I come often, even the €100 note is practically not seen, but it may have a larger role in countries with a less well developed financial system (it took me three days to find an ATM on the Peloponnesos, but that was a few years back).

That said, I have noticed that the €100 is popular with people I take for recent immigrants. They may just be unaware of banking and payment systems. However, I am wondering if the above-mentioned researchers have considered them all illegal immigrants and lumped them together with gun runners, blackmailers, smugglers, drugs dealers and maffioso as "criminals". If so, I would question the value of that research.

Peter
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Offline chrisild

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Re: Why 'Bin Laden' Euro Notes Should Be Abolished
« Reply #3 on: April 11, 2013, 02:20:25 PM »
In the euro countries where I come often, even the €100 note is practically not seen, but it may have a larger role in countries with a less well developed financial system

-- which translates to "I don't go to Germany very often". ;D  Over here it is fairly normal to pay with a €100 note when and if the amount due is not terribly far away from that. In other words, use a "Hunderter" to pay something that costs 15 euro, and you'll get stern looks or worse. Use it for something that costs, say, €75, and all is well. Location also plays a role - gas station tend to frown upon €100 notes, and usually refuse higher denominations.

As I wrote, I don't use €200 and €500 notes, and I would not have any problems if they were phased out one day. After all, why withdraw lots of cash first, only to carry it around, when there are means of payment that in my opinion are more convenient when it comes to relatively high amounts ... What I find odd, however, is the proposal to basically confiscate all cash that has a face value higher than what this US expert seems to find tolerable. What next, should the Swiss 1000 CHF note be verboten and confiscated too, or is the euro their only target? 8)

Christian

Offline Figleaf

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Re: Why 'Bin Laden' Euro Notes Should Be Abolished
« Reply #4 on: April 11, 2013, 02:45:36 PM »
Vamvakidis said that all bills that are not deposited within a month, or are not justified by legal income sources, would then become European Central Bank (ECB) profit.

That doesn't amount to confiscation. As long as you would have the sort of income that matches the sort of amounts you want to deposit, there is no problem. I find the term of one month too short, but that is another matter. Also, while I don't see problem with anyone depositing a single note, or a multi-millionnaire depositing €10 000 in €500 notes, where is the threshold where you start wanting to see documentation and at what point do you refuse a deposit?

The method advocated is quite well known as money supply cleansing, but more usually, it takes the form of depositing all notes in a frozen account, that is thawed as the owner proves legitimate ownership. You can make a case for such action if you assume or know that much of the money is illegally obtained. There would still be loopholes, such as casino owners, but you'll catch at least one kind of tax evader and intermediate drugs dealers and mafioso.

Of course, high value USD, JPY and CHF notes are also more likely to be held by unsavoury types. A synchronised action would win enormously in efficiency, but it would not remain a secret and there would be little political will to do it. To the delight of the criminals.

Peter
An unidentified coin is a piece of metal. An identified coin is a piece of history.

Offline chrisild

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Re: Why 'Bin Laden' Euro Notes Should Be Abolished
« Reply #5 on: April 11, 2013, 03:22:03 PM »
That doesn't amount to confiscation.

Hmm, remember what the Banca d'Italia did in 2011? The original deadline (end of the lira cash redemption period) was the end of February 2012 - and all of a sudden that was hastily moved to early December 2011. Not exactly confiscation either, but obviously this was done in order to not have to redeem that much ...

Over here, all coins and notes ever issued in the Federal Republic of Germany can still be redeemed, and there are no plans to change that. Similarly, at some point the current €5 notes will cease to be legal tender - but they will always be redeemable. Thus the suggestion of treating two paper denominations differently from all the other money sounds strange to me.

Well, we'll see what comes out of this. :)

Christian

Offline chrisild

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Re: Why 'Bin Laden' Euro Notes Should Be Abolished
« Reply #6 on: April 27, 2013, 11:40:29 AM »
Seems that the ECB as a whole does not have an opinion about this yet. :)  In the same week, Benoît Cœuré says (presentation of the €5 note in Vienna) that having a €500 note makes sense -- and Vítor Constâncio says (EP Economic and Monetary Affairs Committee) that it may make sense to do away with it. Hmmm.

Christian

Offline Figleaf

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Re: Why 'Bin Laden' Euro Notes Should Be Abolished
« Reply #7 on: April 27, 2013, 11:50:13 AM »
It is not unusual for a central bank and a parliament to have different opinions. It is not even unusual for a member of parliament to prefer change (and a chance to attach his name to a piece of legislation), while a central bank likes the status quo. I would expect that in this sort of matter, the monolithic bank trumps the cackling, busybody parliament and reality is the lesser concern. That is not unusual either...

Peter
An unidentified coin is a piece of metal. An identified coin is a piece of history.

Offline chrisild

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Re: Why 'Bin Laden' Euro Notes Should Be Abolished
« Reply #8 on: April 27, 2013, 12:08:38 PM »
Not sure whether the EP has a majority opinion in this regard, but what I found interesting and even amusing is that both Vítor Constâncio and Benoît Cœuré are in the Governing Council of the ECB. (Constâncio is vice president, Cœuré is in the Executive Board). In my opinion, they both have a point: The €500 note is hardly necessary or used in everyday life - on the other hand, these days there is hardly any incentive (aka interest rate) to leave your money at a bank. ;)  And I find it quite simplistic to believe that, by doing away with the euro area's highest denomination - without addressing issues such as tax havens which make moving money (not matter what denominations) so attractive - you could solve the underlying problem.

Christian

Offline chrisild

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Re: Why 'Bin Laden' Euro Notes Should Be Abolished
« Reply #9 on: January 13, 2014, 03:14:47 PM »
Today Yves Mersch (member of the ECB executive board) presented the new €10 note in Frankfurt, and answered a few questions from journalists. One was about the €500 denomination, and whether the ECB had any plans to do away with it, as according to some reports in German media it is mostly used by criminals. Mersch replied that "many people say that criminals prefer big German cars - but that is no reason to forbid the production of such cars."

Christian

Offline Afrasi

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Re: Why 'Bin Laden' Euro Notes Should Be Abolished
« Reply #10 on: January 13, 2014, 05:32:55 PM »
Over here it is fairly normal to pay with a €100 note when and if the amount due is not terribly far away from that.

I disagree totally with Christian's opinion. The highest usual bank note at all places I visited in the last years in North, South, West and East Germany is the 50 € note. Therefor it is usually the highest bank note you will get in a ATM.

Offline chrisild

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Re: Why 'Bin Laden' Euro Notes Should Be Abolished
« Reply #11 on: January 13, 2014, 10:17:18 PM »
Well, an ATM is not the only cash source. :) And my point is quite simply that (provided you don't buy a chocolate bar or so only ...) many stores in Germany will accept your €100 note without further ado. Elsewhere you may come across big "We do not accept these" signs right at the entrance ...

Christian