Monday, March 28, 2016

Another Warning on the Elimination of High Denomination Note Currency

Former U.S. Treasury Secretary Lawrence Summers recently called for the elimination of the 500 note euro and the 100 note US dollar.

"Extensive analysis is totally convincing on the linkage between high-denomination notes and crime," Summers wrote in a recent editorial for The Washington Post.

In an article at, Simon Consatble is the latest to warn about what is really behind the move:
The problem is that such assertions don't pass even the most cursory sniff test.

Does anyone really think that the criminal element will just pack up their businesses because the C-note or €500 note are eliminated? Will drug dealers decide to go back to school and become pharmacists once handling cash becomes too troublesome?

In your wildest dreams, can you imagine a hardened crime boss saying: "OK, boys, it's time to shut down the firm. They've dealt us a fatal blow. No more C-notes."

Of course not!
What's really going on is that the government wants more control and tracking capability of all spending. Control to direct the spending habits of all Americans.  Constable again:
The truth is that eliminating high-value bills won't do much of anything to reduce crime.

But it will accomplish something in another arena, that of monetary policy as determined by the Federal Reserve and the European Central Bank.

"We know the big policy challenge is, 'What can the central banks do when interest rates are already so low?'" says Lakshman Achuthan, cofounder of the Manhattan-based Economic Cycle Research Institute.

If extra monetary stimulus is required in the United States, then one step is to reduce the cost of borrowing -- perhaps to zero. Alternatively, policymakers could set so-called negative rates, which amount to charging banks interest on reserves held by the Fed, rather than paying it. Other major economies including Japan and the European Union are already setting some rates below zero.

And if the Fed did eventually set negative rates -- a scenario included in this year's banking stress tests -- it would give finance companies a disincentive to park money at the central bank, where they would have to pay interest.

Eventually, if banks passed on the negative rates to depositors, instead of receiving $1 a year for each $100, you might lose a dollar a year.

The message becomes clear. Do something useful with the money you are saving in the bank. (By useful I mean invest it or spend it.) If you don't, we'll start taking little bits of it away in the form of negative interest rates.

But the Fed is also faced with the problem that if there are lots of large-denomination bills available, people might simply remove their cash from the bank and place it under the proverbial mattress.

Bottom line the elimination of large denomination notes is about squeezing the average citizen. Criminals will always find workarounds.



  1. ─"Extensive analysis is totally convincing on the linkage between high-denomination notes and crime," Summers wrote in a recent editorial for The Washington Post.─

    I could make an extensive analysis that showed a totally convincing linkage between big truck use and crime. Or between computers and crime. Whatever the case, it is obvious the linkage is one of mere coincidence and not causation. There's always going to be something that criminals will use as a matter of predilection that is not related to their motives. Larry Summers is merely engaging in very childish sophistry; I can't fathom why he's not being criticized even MORE for assuming the rest of us, mere mortals, are imbeciles.

  2. Yeah, but I'm sure glad people can only bring 3.5 oz of hair gel on airplanes. No manipulation there.

  3. How about the linkage between Big Taxes and Government crime?