The Case Against High-Denomination Bank Notes

Although the use of cash continues to decline in both the legitimate and illicit economies, lots of criminal transactions, including bribe payments, still use cash—slipped into pockets or envelopes, or carried in briefcases and suitcases. The anonymity, untraceability, and universal acceptance of cash make it useful for many types of criminal activity, including not only corruption, but also drug trafficking, human trafficking, and terrorism. Cash is also indispensable to money laundering, because it both obscures the source of funds and enables money to flow undetected across borders. (As a Europol report observed, “[a]lthough not all use of cash is criminal, all criminals use cash at some stage in the money-laundering process.”) Indeed, as governments and banks increasingly scrutinize electronic transactions, parts of the illicit economy will embrace cash all the more.

Nobody seriously argues for eliminating cash entirely. But there is a simple step that monetary authorities can and should take to make cash-based criminal transactions substantially harder, without substantially impinging on the legitimate cash-based economy: eliminate high-denomination notes.

In contrast to lower denominations, high-denomination notes serve few useful purposes in the legitimate economy. While some high-denomination notes are held by governments and by people without access to the banking system, a significant proportion of these notes are used for unlawful activities like paying bribes, laundering money, and evading taxes. Indeed, British law enforcement estimated in 2010 that 90% of €500 notes in the UK were held by organized crime, and the economist Kenneth Rogoff estimates that over 75% of the $100 bills held in the United States are used for illicit purposes. Given that there are $1.08 trillion in hundreds currently circulating—approximately thirty $100 bills for every man, woman, and child living in the United States—and that the typical American adult carries only about $60, it’s almost certain that a substantial portion of those hundreds is in the hands of criminals.

Why are higher-denomination notes so popular with criminals? The reason is simple: Cash is bulky, and a large quantity of notes tends to be heavy and conspicuous. For most legitimate everyday cash transactions, the difference in size and weight between lower-denomination notes and higher-denomination notes is trivial—five $20 bills don’t weigh much more than a single $100 bill, and aren’t much harder to fit in a wallet. But criminals engage in much larger cash transactions, where the size and weight difference can be substantial. Consider money laundering operations, which often require concealing cash and smuggling it across borders. One million dollars in $100 bills weighs just 22 pounds (10 kg) and fits in a briefcase; $1 million in $20 bills would weigh over 100 pounds (45 kg) and require a duffle bag. Forcing launders and smugglers to use lower-denomination bills would either cause them to increase the total number of cash shipments or make existing shipments more conspicuous. Either would probably result in more seizures by law enforcement.  

Not only would eliminating high-denomination notes make laundering bribes more difficult, it would make the actual payment and storage of bribes riskier. Most obviously, doing away with large notes would make it more difficult to discreetly engage in petty bribery, the form of corruption that most commonly makes use of cash. The proverbial cash-stuffed envelope would be more conspicuous if it were bursting with many lower-denomination notes. And even grand corruption, which often involves wire transfers and the like, would also be hampered by eliminating high-denomination notes because corrupt officials often rely on cash to withdraw, move, and store their ill-gotten gains. Consider a recent case in China, where the highest denomination note is the CN¥100 bill ($15). When law enforcement raided the house of one corrupt general, they needed 12 trucks to transport the CN¥200M ($31 million) in bribe proceeds that they found. Had this illicit fortune been held in $100 bills instead, it would have fit into a few suitcases, and been much easier to hide.

Monetary authorities around the world could make it considerably more difficult to pay and accept bribes, launder money, evade taxes, and engage in a host of other criminal conduct by simply printing smaller notes. Any resulting inconvenience to legitimate activity, which would likely be small, would be well worth the trouble. Indeed, many monetary authorities have already stopped issuing high-denomination bills because they were used frequently or even predominantly in criminal activity. The European Central Bank, for example, discontinued the €500 ($598) note in 2018 for fear that it enabled drug trafficking, money laundering, and terrorist financing. Singapore stopped issuing its S$10,000 ($7,431) note in 2010 to combat money laundering. And in 2016, India eliminated the ₹500 ($7) and ₹1,000 ($13) rupee notes (though the rollout of this plan was enough of a debacle that it may serve as a cautionary example of how not to implement this sort of change). Many high-denomination notes remain in print, however, including the $100, €200 ($239), €100 ($120), and JP¥10,000 ($92).

While unilateral action by national monetary authorities to discontinue these and other high-denomination notes would be helpful, coordinated action would be preferable. After all, cash is fungible: While eliminating any one high-denomination note would be an improvement, some criminal activity would likely shift to another. The good news is that relatively few countries issue problematically large notes. In fact, unified action by the G20 would include nearly all high-denomination notes, and there is a good chance that the remaining few issuers could be persuaded to join as well.

3 thoughts on “The Case Against High-Denomination Bank Notes

  1. Pingback: Episode 258 – the Design Thinking in Compliance edition | The Compliance Podcast Network

  2. Agree with your argument entirely. I still remember the eye roll when I broke a fifty to pay for an ice cream (the only time I have used one). The only shame would be that us Brits would lose Alan Turing from our wallets!

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