Sunday, August 24, 2008

ECB "Competes Agressively for the Criminal Currency Market"

London School of Economics Professor Willem H. Buiter delivered a very controversial paper at this weeks Jackson Hole Conference. More on his full paper shortly, but check this out. In a footnote to his paper, Buiter contends that the ECB "competes aggressively for the criminal currency market":

The existence of currency is, because of the anonymity it provides, a boon mainly to the grey and black economy and to the outright criminal fraternity, including those engaged in tax evasion, money laundering and terrorist financing. The Fed has reduced its subsidisation of such illegality and criminality by restricting its largest denomination currency note to $100. The ECB practices no such restraint and competes aggressively for the criminal currency market with €200 and €500 denomination notes. When challenged on this, the ECB informs one that this is because in Spain people like to make housing transactions in cash. I am sure they do.
While a very good case could be made that some of the items Buiter lists as criminal are simply cases of individuals protecting their privacy, I never before thought of the ECB competing for this business, but I guess they are. So when it comes between the US and the EU on this tiny spot on the privacy meter, you now know who is your friend and who is not.

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