The High Price of a High Denomination

Even in Brussels the €500 euro note can be seen as impractical or suspicious. Photo: Niklas Hjelm-SmithThe €500 note is one of the most valuable legal tenders of any issued currency in the world. It is so valuable that shops normally refuse to take it, making it too inconvenient a note for the average person to use. Most Europeans have never seen nor used one, even though €500 euro notes make up a third of the total value of euro banknotes in circulation. Its high value relative to its size allows for a specific ease of use, which, according to the European Central Bank (ECB), is to serve as currency for the purchase of expensive items and to assist people who wish to store lots of their own wealth in cash. These are also the same reasons why criminals love it, and why the note has attracted so much controversy.

Despite its high value, its security features are the same as the other euro notes. At 16 centimeters wide and 8.2 centimetres high, it by far out-scales its sibling notes. True to the art of European compromise, the illustrations on its purple paper represent modern 20th century European architecture without depicting any particular structure from a specific country.

It has acquired connotations of wealth and crime. It came as a surprise when Jay-Z, in the video for his song ‘Blue Magic’ (1:20, 2:11), was seen flipping through stacks of €500 notes as a nod to European affluence. And in a critical scene in the film Skyfall, James Bond was handed a briefcase full of perfectly arranged €500 notes amounting to four million euros. One million in British pounds sterling weighs 50 kilograms, while exactly the same value of cash in euros comes up to just two kilos, making moving and storing lots of cash much easier. Testament to the €500 note’s high value relative to its size is the fact that a small 45 centimetre deposit box can hold up to 10 million euros.

Although it enjoys a certain prominence in popular culture, the note has also earned the widespread epithet of ‘bin Ladens’: everyone has heard of the €500 note, but never really seen it. It is thus quite poetic that when his compound was raided by NAVY seals, Osama bin Laden was wearing a traditional kurta paijama with a single €500 bill note sewn into it.

Exchange offices in Britain stopped selling the €500 note because of its widespread use in money laundering. According to the United Kingdom’s Serious Organized Crime Agency, 90% of its use in the UK was for criminal activity. In 2010 a criminal gang of a dozen people specialised in laundering money by exchanging British pounds into 500 euro notes. They carried out their transactions by hiding the notes inside cereal boxes, with one box able to hold approximately 300,000 euros. British criminal investigators eventually unravelled a sophisticated, large-scale underground currency exchange business where criminals had been buying euros from major banks and currency businesses from the international market. The total amount of notes purchased by the gang exceeded the total amount of euros sold at all 12,500 British Post Offices.

In 2006 roughly 70 percent of all money in Spain consisted of €500 notes. They were streaming into Spain at an incredible pace. The country had a quarter of of the total number of €500 notes in circulation throughout the Eurozone. Many factors were behind this strange situation, the biggest of which was the huge property boom taking place at the time. This surge in the housing market was followed by a growing black economy favouring the €500 note. This was partly due to tax evasion and partly because of Spaniards’ preference for storing financial assets in the form of cash.

Political pressure is in turn increasing calls to remove the note from circulation. Socialist parties in Spain and in the Netherlands have made public statements urging the ECB to  withdraw the note because, “The €500 note threatens to become an international drugs currency”. Currently 20-25% of all euro banknotes are kept outside the Eurozone area.

According to Richard Portes at the Centre for Economic Policy Research, it was well-known, prior to the introduction of the note, that due to its sheer value the 500 euro note would surpass the 100 American dollar bill as the denomination of choice for underground activity and organised crime. It was raised as a concern by Members of European Parliament as far back as 2001 when the Eurozone member states were switching to the euro.

If the ECB were ever to remove the note, it could provide an opportunity for an economic boost. The ECB could create a cut-off date for exchanging €500 notes for those of smaller denominations, with the requirement of proving through the provision of receipts that they had been used for legal purposes. All notes not exchanged by the deadline would then become profits for the bank.

The ECB maintains its firm position that the conditions which led tot the creation of the €500 note still exist today. Reasons include that both Germany and the Netherlands used to have  notes of similar value, and that there exists a demand among economic agents for a cash note providing the important role of storing assets. Thus it seems that despite criticisms levied against the note, it is unlikely to be removed from circulation any time soon.


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