- Large bills under scrutiny, but consumers still prefer cash
- Central bank representatives from Europe, U.S. speak in Paris
The European Central Bank is studying the mechanics of scrapping the euro area’s largest denomination note, though it hasn’t yet made a decision.
President Mario Draghi said in February that policy makers are examining the controversial 500-euro ($571) bill amid concern it aids criminal activity and terrorist financing. Doris Schneeberger, head of the currency management division at the Frankfurt-based institution, said on Monday that it’s “currently having a look at the technical details” of phasing out the denomination.
“But whether we would do it, this is not decided yet,” she said at “The Future of Cash” conference in Paris. “I think people still use the 500 euro, they still trust it, but we can see the demand is flattening down.”
In addition to concerns about smuggling and money laundering, the future of large denominations -- and even cash in general -- has been questioned amid increased use of electronic payments and the rise of digital currencies. Schneeberger said media reporting on the future of the 500-euro note may have created some “insecurity” among the public about larger notes, but there are still “very, very high cash transactions in the euro area.”
“There is no correlation between the use of cash and the black or gray economy,” she also said.
The Frankfurter Allgemeine Zeitung reported on April 7 that abolishing the top denomination bill would cost more than 500 million euros. ECB Governing Council member Jens Weidmann said in a Funke Mediengruppe interview published in March that eliminating it would be a logistical challenge and wouldn’t “noticeably” reduce criminal activity.
The debate flared again on Tuesday when the Wall Street Journal reported that Weidmann supported a gradual withdrawal of the 500-euro note, citing an unidentified person familiar with the matter, and a Bundesbank spokesman said that wasn’t an accurate reflection of its position.
At the conference in Paris, officials stressed that cash is here to stay. Alain Gerbier, director of the cash department of the Banque de France, said hard currency has longevity and said the country’s modernization of its cash centers was a sign of that.
“The Bank of France is engaged in major changes, and we pursue large projects to have a strong cash cycle in France and to be more efficient,” he said. “If we do that, it is because we really believe that the end of cash is not for tomorrow.”
Schneeberger said that if cash is to disappear, “then so be it, but it should be the choice of the consumer.”
Paivi Heikkinen, chief cashier of the Bank of Finland, said there’s a dilemma for central banks in northern European countries such as hers where the use of cash is declining, but officials must be able to respond in bad times when people want to use cash in an emergency.
“Cash is the fallback solution, and that lies very heavily on my shoulders,” she said.
Cash’s future was endorsed by the Bank of England’s chief cashier, Victoria Cleland, and Joshua Opatz from the Cash Product Office of the U.S. Federal Reserve System. In the U.K., while BOE Chief Economist Andy Haldane has posited the idea of abolishing cash, the bank is rolling out its first plastic bank notes later this year.
“Cash isn’t dead -- in the U.K., it’s certainly not dead at all,” Cleland said. “The Bank of England is very much in the business of cash.”