“Criminal” 500 euro bills contribute to ECB profits
The enormous demand for 200 and 500 euro bills is great for the Eurozone and the profits of the European Central Bank (ECB) according to the Wall Street Journal today. The ECB is the bank printing the bills. Seigniorage is the technical term for the difference between the nominal value and the production value of the money. No surprise that for a 500 euro bill, the seignorage significantly adds to ECB’s profit. The chief economist for Citigroup, mr. Wille Buiter, wrote that the 200 and 500 euro denomination drove the popularity of the euro with criminals through the roof. ECB’s seigniorage last year was around 50 billion euro, but Buiter expects that this amount could grow to the 2 – 6 trillion euro range in the next couple of years. When the euro bank notes were first issued in 2002, the total circulation of 500 euro bills amounted to 30.8 billion euro. Nowadays the total value of 500 euro notes in circulation is 285 billion (570 million €500 bills in circulation), an annual growth of over 30%. Guess where all these notes went… safe houses full of them. The preferred means of payment amoungst criminals; a million dollars in $100 bills would weighs 5 times as much as the same value in 500 euro notes. An ECB spokeswoman says there’s no plan to withdraw high-value notes, national equivalents of which were used in six member states before the euro was launched. They will be retained when a redesigned series is issued in coming years. Exchange offices in the UK recently stopped selling 500 euro banknotes because of their use by money launderers (see earlier post); other similar initiatives to follow? Or is everybody happy with this win/win situation?