Q24N – Large denomination bills, such as the 500 euros, US$100 and CA$1.000 (though out of circulation, are still out there) should be eliminated to combat financial crime and tax evasion, including paying tradespeople in cash, says former bank boss Peter Sands, the former chief executive of Standard Chartered who advises the British government.
Criminals move more than US$2 trillion around the world each year, corrupt payments amount to US$1 trilllion and tax evasion robs countries of up to 70% of their tax income, according to Sands. Yet efforts to stem the flows by catching perpetrators or detecting payments result in less than 1% of illicit flows being seized.
“Eliminating €500 and US$100 notes, among others, would scrap a method of payment favoured by wrongdoers, even though it made little sense for legitimate users, Sands argued. Cash was useful for small transactions, such as buying a cup of coffee, or for pocket money, but it could be lost or stolen and people preferred electronic payments for big transactions,” he said.
In Costa Rica, the highest note is the ¢50,000 colones, a bill that is rarely seen or used for payment at supermarkets and retail stores. Some retailers don’t even accept them. Pricesmart, for example, will not accept the US$100 note. And although the ¢20,000 is the most common high denomination note in the country, try paying a taxi fare with with.
“High-denomination notes are arguably an anachronism in a modern economy given the availability and effectiveness of electronic payment alternatives. They play little role in the functioning of the legitimate economy, yet a crucial role in the underground economy. The irony is that they are provided to criminals by the state,” Sands said in his Harvard Kennedy school paper, Making it Harder for the Bad Guys.
Sands’s idea is not new.
Last week, Mario Draghi, the president of the European Central Bank, said its policy on issuing €500 notes was under review because of concerns they were widely used by criminals.
In Canada, according to a report by the National Post, more than 10 years after the C$1,000 bill disappeared from circulation almost one million of them are still out there, somewhere. Retired on May 12, 2000, for being mostly used in criminal transactions, any $1,000 note deposited at a bank is destroyed, although the bills — nicknamed “pinkies” by gangsters because of the pinkish-purple ink — remain legal tender.
Scrapping high-value notes would not eliminate crime and corruption but doing so would increase criminals’ costs and make them easier to detect, Sands argued.
Sands quit Standard Chartered last year after rising bad debts caused profits to tumble, damaging a reputation built up when the emerging markets bank came through the financial crisis relatively unscathed.
He was one of the architects of the banking bailout in October 2008 and is the lead non-executive director for the Department of Health. The former McKinsey consultant also provides informal advice to 10 Downing Street on matters such as changes in the labour market.