Excellent wsj article on the subject. I think they nailed it.
The Swiss central bank and the Norwegian central bank did research into the ''crime'' argument when they were planning their latest banknotes series (both series will begin to be introduced 2016/2017). They have come to the conclusion that the effect is negligable, and thus not a valid argument for abolishing high denomination notes. Hence, Norway will get a new 1000 kr (approx. $115) note in 2019, and Switzerland a 1000 franc note (approx. $1000) -- if the central banks don't change their minds.
By the way, Italy recently raised the limit from €1000 to €3000 because, well, it's Italy and the €1000 limit was not ''practical''
Well ultra high denomination notes, the Canadian $1000 (in 2000), the Swedish 10,000-kr (in 1991), and the Singapore 10,000 dollar (in 2014) have been eliminated. In all cases except Sweden the old banknotes are still money but the notes are slowly being destroyed as they reach the banks.
Sweden has chosen not to eliminate the 1000SEK banknote, but they are only circulating a token amount. As of 31 Jan 2016 they are circulating only 1.228 million of the new version of their banknote, whereas the old 1000SEK banknote peaked 48.358 million in the year 2001. We don't know how many notes are being held by the central bank as production statistics are secret in Sweden.
Norway has not produced any new 1000NOK banknotes since 2005, but that is not extremely unusual. What we don't know is how many of the new series will they produce in 2019?
But as the Riksbank descends into negative repo-rates it is pretty obvious that cash is incompatible with negative interest rates. Date Repo-rate 28. Oct. 2014 0.00% 12. Feb. 2015 -0.10% 18. Mar. 2015 -0.25% 02. Jul. 2015 -0.35% 11. Feb. 2016 -0.50%
Repo rate is the rate at which the central bank of a country (Riksbank in case of Sweden) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.
The Riksbank is the first central bank to use negative interest rates. They also have a 200 SEK billion QE program to keep the SEK/EUR rate low.
I guess if we want to keep cash in circulation, we must use it. the more people that gladly accept plastic/mobile money, the easier it will be for the powers that be to force the cashless way.
Quote: I guess if we want to keep cash in circulation, we must use it. the more people that gladly accept plastic/mobile money, the easier it will be for the powers that be to force the cashless way.
It may not matter. As more and more countries go to negative interest rates, it is a basic law of economics that people would rather turn their accounts into cash and guard it against thievery themselves than to let it be vulnerable to being chipped away.
In order to prevent that from happening Central banks will have to remove the cash option. Studies like the one cited in the opening post will provide the politically acceptable reason.
Keep in mind that only Sweden is getting rid of it's cash as of today. The most similar countries to Sweden, Denmark and Norway, have not done the same thing. Almost every country in the world has considered it, but nobody is actually doing it.
The USA has not even tried to do something modest, like limit the circulation of hundred dollar bills to a trillion dollars.
Sweden's numbers as of 29 Feb 2016
US $545 per capita in 500 Crown banknotes ($60 apiece) US $63 per capita in coin US $728 per capita in coins and valid banknotes
I think what bothers me more than anything else is that banks in Sweden have less than 8 hours of GDP in cash. You could never have a run on the banks in Sweden, because they have no cash. Willie Sutton's famous quote when asked by the FBI "Why do you rob banks" was "Because that's where the money is", would no longer apply in Sweden.
Eliminating $100 bills would force me to buy a money counter. It would also reduce the amount of "printing" the wad makes in my pocket. There's no reason for eliminating them. Criminals usually play with and receive small bills anyways because money goes up the chain not down. Criminals like it this way anyways because they can re-spend the money fast since it looks worn, and high den. bills may raise suspicion. I'm all for re-introducing large den. bills as it would cut down on my time counting money that could be better spent doing something else. In Canada the value of $1000 bills is not a lot more than the face value and it's super-hard to find a buyer for a single piece because of the high dollar amount and the fact that they are not rare (someone else will give it to you for face value).
IF governments are so worried about cash smuggling, why not invent a large bill that goes off in the metal detector? That way only corrupt officials can move the money around, and that's already illegal, so no new laws are needed. Easy to detect, easy to do business, life goes on. The large bills and criminals element argument is just weak.
One question that comes up is how long would it take for the stock of banknotes in circulation to go down. Canada, like the USA does not declare banknotes invalid. The policy is to simply state that a denomination will not be produced anymore, and all notes which are turned into the BEP (or equivalent) will be destroyed. Canada did so with their $1000 banknote in 2000, and there are still over 800,000 notes outstanding as of the end of 2014.
Canada has circulated close to 40 million CAD$100 banknotes as of today. They won't demonetize them, but only destroy them as they are turned in. Now they may grow difficult to spend, but I am betting people will take good care of the notes and they would still be circulating 2 decades after the Bank of Canada stopped producing any new ones.
As you can see the Bank keeps increasing the supply of $100 banknotes every year, and by a substantial percentage. I think the Bank of Canada releases their annual report in a few weeks, and they should indicate how many polymer notes have been produced and circulated. The non-polymer notes will be turned in for destruction fairly quickly since they will be increasingly difficult to spend, even if the government says they are legal tender.
From last year's report: A breakdown by denomination is presented below. 31 Dec 2014 $5 1,188.0 $10 1,275.6 $20 17,801.4 $50 11,233.9 $100 $37,323.9 Other bank notes 1,200.7 Bank notes in circulation 70,023.5 They state that 75% of the banknotes are polymer, but they don't break it down by denomination.
From last year's report: A breakdown by denomination is presented below. 31 Dec 2014 $5 1,188.0 $10 1,275.6 $20 17,801.4 $50 11,233.9 $100 $37,323.9
If I understand these Bank of Canada figures correctly (I downloaded the annual report and read the part in question) these figures are the total value of each denomination in circulation. The actual number of each banknote should thusly be:
The rise of $50 and $100 notes over the last few years (~20% from 2011 to 2014) is very interesting. In my opinion, they are mainly used to ''store value,'' which clearly indicates that there is a use for these denominations by the public.
Quote:
You could never have a run on the banks in Sweden, because they have no cash.
Well, you don't know how many banknotes the Riksbank has stored in its vaults. Production figures are not released. Riksbank might have a substantial amount in store which could be released and delivered to banks and ATMs if necessary.
At the risk of repeating myself, the USA adds an extra 1/2- 1 billion $100 banknotes to circulation every year. Right now only Sweden is eliminating cash, and a few countries are holding steady. So it is mostly academic as of today. But Sweden is interesting partly because they were the first country to introduce negative interest rates.
But Sweden is not the 800 lb gorilla. Sweden, Norway, Denmark, Switzerland and to some extent the UK have to worry about money pouring into their currency trying to partially reproduce George Soros's billion dollar payday in 1992 when he broke the Bank of England.
Quote: The rise of $50 and $100 Canadian notes over the last few years (~20% from 2011 to 2014) is very interesting. In my opinion, they are mainly used to ''store value,'' which clearly indicates that there is a use for these denominations by the public.-redlock
The $50 is not very popular in USA and Canada where it is regarded as too large for convenient transactions, and too small for "store of value". It is the standard for Australia as I assume that most ATMs in Euro Zone dispense 50 Euro banknote primarily (my few visits there that was the case). The large increase in high denomination banknotes in circulation in Canada surprised me as well. Unlike the USA, Canada is very vocal about the government efforts to increase cashless transactions. With the new polymer banknotes, I just assumed that they would follow the lead of Sweden and reduce the value of currency in circulation. They should publish their 2015 annual report some time in March.
The annual report does say "Approximately 1.8 billion bank notes ($5 to $100) were in circulation at 31 December 2014."Although 19% of the banknotes are $5 and $10 and 48% of the banknotes are $20, the annual report only states that 25% of the notes are still paper, although they don't print a breakout table for each denomination. I assume Sweden prints a table since their old banknotes will become invalid. Canada does not make old notes invalid, but instead relies on basic human nature which means people will eventually refuse to accept the old notes. Eventually they will vanish into personal collections or be turned in to be destroyed.
Quote: I do not think that is the phrase you want to use, as it is our representatives who would allow it to happen.
Taxation without representation is exactly the phrase I want to use.
I am not represented whatsoever by the Federal Reserve banking cartel that price fixes interest rates in this country.
On the elimination of cash issue, in theory I am represented by politicians so I will give you that point.
Even Janet Yellen has questioned their legal authority to implement negative interest rates. Taxation without representation is the reason why. Couple that with ring fencing all Americans by eliminating physical cash so they have no escape and their case is even weaker.
Here is a wiki link for those wanting to learn more on the history of the topic.
Here is a very good dramatic reading / paraphrasing of the Declaration of Independence from the miniseries 'Sons of Liberty' from last year on the History Channel. Great 3 episode miniseries if you get a chance to watch it. They seem to rerun it around patriotic holidays.
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They don't get into the list of grievances such as 'imposing taxes on us without our consent', but it is a very good performance. I teared up the first time I watched it.
Quote: The $50 is not very popular in USA and Canada where it is regarded as too large for convenient transactions, and too small for "store of value". It is the standard for Australia as I assume that most ATMs in Euro Zone dispense 50 Euro banknote primarily (my few visits there that was the case).--PacoMartin
You know the ECB statistics regarding cash and banknotes . I can confirm that the €50 banknote is the ''backbone'' of cash here in Germany (and most of the Eurozone). While in Canada and the USA it is obviously the (CDN/US) $20 note. German ATMs usually dispense €10, €20 and €50 banknotes. Many also the €5, a few the €100 (instead of the €5).
Quote: Taxation without representation is exactly the phrase I want to use.
I am not represented whatsoever by the Federal Reserve banking cartel that price fixes interest rates in this country.
On the elimination of cash issue, in theory I am represented by politicians so I will give you that point.
True. Unlike the colonists, who had no one representing them in Parliament, you have three representatives in Congress (two Senators and one member of the House).
(Unless you live in the District of Columbia, where one would have cause to use that phrase more accurately.)
However, I will conceded that we have a de facto taxation without representation, in that these representatives are beholden to moneyed interests and not those of us commoners.
Quote: Man I bet the credit card lobby is pushing very hard to get this idea into law. Make cash so cumbersome to use that people have no choice to give their 3% on every transaction to the credit card industry.
What I have done the last 20 or so years, was to use their money for free, and only purchase what I could pay for in full on the next statement, (this was after being in debt 15 years paying around 20% in C/Card fees)..
I guess if most people could do this, the credit card industry would have to look elsewhere..
I do the same, but remember that the vendor still has to pay a percentage to the card issuers. So they are still making money even if they are not making money on you.
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Posted 03/03/2016 03:16 am
. I can confirm that the €50 banknote is the ''backbone'' of cash here in Germany (and most of the Eurozone). While in Canada and the USA it is obviously the (CDN/US) $20 note.
