World Economy

€500 Note in Question

€500 Note in Question€500 Note in Question

The Bin Laden is elusive, infamous, and endangered. This isn’t of course the long-dead leader of al-Qaeda, but rather the €500 ($551) note—as known by its Spanish nickname. Rarely seen by ordinary citizens, and suspected by officialdom of aiding criminality and terrorism, the single currency’s largest physical unit is slated for a potential phase-out by the European Central Bank.

Such an event isn’t momentous, but it coincides with efforts by European governments to curb cash in general, striking a nerve and stoking fears among the public that bureaucrats are conspiring to eradicate real money altogether. While the ECB and other central banks may be tempted as they drive interest rates lower, pushing too far risks backfiring if it drives the privacy-conscious away from policy makers’ control toward unregulated electronic currencies like Bitcoin, Bloomberg reported.

“We sure need a medium of exchange and we sure need a store of value,” said William White, an adviser to the Organization for Economic Cooperation and Development, noting that it’s “not impossible” decentralized currencies will eclipse official money. “If it turns out that the system we’ve got doesn’t provide that, then something else will.”

Given that cash in circulation in the eurozone has risen steadily since its introduction in 2002 to reach €1.06 trillion as of last month, any suggestion that all that could someday be removed seems fanciful. The €500 note represents 29% of the value of all banknotes—or €306 billion—so a change would be a major intervention in money supply. It’s unclear how the value would be replaced.

That’s enough for Jens Weidmann, president of Germany’s Bundesbank and a member of the ECB’s Governing Council, to warn against damaging trust in the currency itself. Lingering unease blew up into a national issue after the German finance ministry this month proposed a €5,000 ceiling on cash payments to fight terrorism financing and tax evasion. Bild, a German tabloid newspaper, ran a front-page petition decrying all curbs on the freedom that cash provides.

“It would be fatal if the current discussion about the abolition of the €500 note or a limit on cash payments were to give rise to the impression with the public that cash is being taken away, step by step,” Weidmann said on Feb. 24.

Elsewhere in Europe, the public is less bothered. After all, what passed for fintech in the 13th century, when paper currency became known in Europe from China, might have a sell-by date. In Sweden, it may be near. The value of bank notes in circulation there has dropped by a quarter in just five years.