When Should A New Largest Denomination Be Issued

I don't have an opinion on Icelandic banknotes and would recommend the thread being moved here; http://goccf.com/f/9

Creating new high-denomination banknotes is not a cause of inflation, it is a symptom of inflation, an indicator that the government recognizes that inflation has already happened and the monetary system needs to adjust to the new reality.

It may have had a more causal nature back in the days when all money had to have a physical existence. Post-WWI Germany and post-WWII Hungary being the two lead examples that come to mind. But in this modern age of electronic money, only a tiny fraction of the money in existence has physical form. Which denomination those physical forms take is largely irrelevant.

As for "when it should happen", the continued electronization of the global monetary system has derailed the old progression, where small-denomination coins become obsolete, small-denomination notes turn into coins, and new high-denomination notes get introduced, thus keeping the general number of coins and notes more or less constant. With fewer and fewer non-criminal transactions being conducted with high-value notes, the need for high-value notes in commerce is greatly reduced and governments worldwide are trending to elimination rather than addition. For most of the last two decades, the answer to the question "which are the highest-value banknotes in common circulation" is directly correlated to "which banknotes are the local ATMs designed to dispense". But in the next decade, we will continue to see ATMs shut down and withdrawn as fewer and fewer people request cash.

Perhaps fewer people are requesting cash, but outside of Scandinavia and India, I defy you to show me a statistic from any country where the stock of cash is growing smaller in their own currency (not relative to the USD). Dramatic changes in exchange rate can drop the value of the cash relative to the USD.

Worth of £50 in USD on its issue date
Series A-C did not include £50
Series D 20 Mar 1981 $113.15
Series E 20 Apr 1994 $74.29
Series F 2 Nov 2011 $79.87
Today's X 28 Jul 2020 $64.61 or €55

Britain is so conservative with large denominations compared to Euro Area. The US is circulating 82% of its banknotes (by value) in the $100 denomination, while Britain is circulating 25% of its banknotes (by value) in the £50 denomination.

The Bank of England took five years to announce the polymer £50 after they announced the polymer £5, £10, and £20. I was almost convinced that they were just going to retire the denomination.

Britain did not use to be alone. At least 9 of the EU currencies before the EURO did not have high value banknotes.
€76.22 : 500 French franc
€60.10 : 10,000 Spanish peseta
€51.65 : 100,000 Italian lira (prior to 1996)
€49.88 : 10,000 Portuguese escudo
€46.59 : 20 Maltese lira
€41.73 : 10,000 Slovenian tolar
€34.17 : 20 Cypriot pound
€31.96 : 500 Estonian kroon
€29.35 : 10,000 Greek drachma