- Assertions by law-enforcement officials aren't enough for ECB
- Banknote policy was branded ‘shameless’ by Goodhart last year
European Central Bank officials want to see evidence that high-denomination euro banknotes facilitate criminal activity rather than relying on unproven assertions, Executive Board member Yves Mersch said.
“There are policemen who are having opinions on this matter, and also in the G-20,” Mersch told reporters in Zurich on Thursday. “I would be very happy if any substantiated evidence would be shipped to the ECB.”
Mersch spoke days after ECB President Mario Draghi told European lawmakers that the institution is reviewing its policies on issuing 500-euro ($560) banknotes. The practice has concerned law-enforcement officials in the region for years, and former Bank of England policy maker Charles Goodhart, an authority on money supply, described it last year as “shameless.”
In discussions with European law-enforcement officials, “it was always the same,” Mersch said. “We said: These are assertions. We would like to have them confirmed by evidence so that we could take the appropriate action.”
U.K. officials decided they had enough evidence some time ago. In 2010, British banks and money-exchange services stopped distributing 500-euro notes after a report showed that 90 percent of demand for them came from criminals. A Bank of Italy study the previous year described how such bills were accumulated by mafia money launderers, terrorists and tax dodgers because they’re easy to hide and transport.
Draghi, the Bank of Italy’s governor at the time, said on Monday that the ECB’s board has been considering the matter “for some time” and that technical work is under way to study the issuance of such banknotes. He spoke a day before the European Commission unveiled an action plan to clamp down on terrorist financing, including proposals for lower thresholds to limit anonymous payments.
“There are questions on how best to implement a decision, and how to communicate this,” Draghi said at the European Parliament in Strasbourg. “We want to make changes, but we want to make changes in an orderly fashion. But rest assured that we are determined not to make seignorage a comfort for criminals.”
Draghi’s comments coincide with a period of reflection at the ECB on its stimulus measures and whether to expand them. Goodhart, speaking in September, suggested then that abolishing high-denomination banknotes might marginally help with that.
“If we were limited to low-denomination notes, at any rate because of the costs of stockpiling and all the rest, we can drive interest rates a little bit further down,” he said.