Should Denmark ban EUR 500 note? ECB thinks otherwise…

Nice bit on ECB website.

Denmark is proposing to ban the usage of EUR 500 note as they believe it is used mainly for criminal and money laundering purposes. It seeks ECB’s advise and the central bank expressed caution against the move. Couple of points here. First, Denmark is part of the Union but does not use Euro as its currency. However, Euro is accepted as a means of payment especially in tourist places. Second, ECB has already stopped printing of Euro 500 note but it remains legal tender.

Given this, ECB says to refrain from any such ban:

Against this backdrop, the Danish authorities are respectfully invited to refrain from introducing a ban on the use of the €500 banknote in Denmark. No such ban has been introduced at Union level. On the contrary, and as noted above, while the ECB has decided to permanently stop producing the €500 banknote, the €500 banknote will remain legal tender and can therefore continue to be used as a means of payment and store of value. Insofar as Danish parties have entered into commercial transactions denominated in euro, often with counterparties in the euro area, the ECB respectfully suggests that the Danish authorities should, in line with the principle of sincere cooperation and the monetary law of the Union, acknowledge that, notwithstanding the fact that
production of the €500 banknote will cease, it is still legal tender for the discharge of debts denominated in euro and may continue to be used as a means of payment and exchange.

3.5 Data on the flows of €500 banknotes between the banking sector and the non-banking sector within and outside the euro area suggest that there are legitimate reasons for using €500 banknotes including, among others, the instant settlement of common high-value payments or to temporarily hold assets in central bank money. The legitimate use of €500 banknotes is supported by results from an ECB survey on the use of cash in the euro area, which indicate that a distinctly larger-than-expected share of the population possessed high-denomination banknotes and received and/or spent them for legitimate purposes Although €500 banknotes may be used for money-laundering activities, so may any other denomination as well as non-cash means of payment. Therefore, the assumption that €500 banknotes are predominantly used by criminals is unsubstantiated. No evidence has been provided by authorities that €500 banknotes are used for illegal activities in Denmark to a larger extent than the national currency, other euro banknote denominations or electronic means of payment.

3.6 Furthermore, the ECB considers that the draft law treats high-value banknote denominations unequally as it does not extend the proposed measures to other high-value banknote denominations, such as the 1000 Swiss francs banknote which has higher purchasing power.

Hmm..

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