G20 urged to eliminate high denomination bank notes

Peter Sands, former chief executive of Standard Chartered Bank in the UK has called for the elimination of high denomination bank notes, including the $100 bill and £50 note, in order to crack down on illicit cash flows.

In a paper for Harvard Kennedy School, Sands puts global financial crime flows at over $2 trillion per year.

"Most of the effort to combat such illicit financial flows focuses on the perpetrators, the underlying criminal activities or on detecting illicit transactions through the banking system," notes Sands. "Yet despite huge investments in transaction surveillance systems, intelligence and interdiction, less than 1% of illicit financial flows are seized.

The case for eliminating high denomination notes has been made before. Some extremely high denomination notes have been vanquished in recent years, such as Canada’s $1000 note in 2000 and Singapore’s $10,000 note in 2014.

But issuance volumes for the notes most commonly used in illicit activity, such as the €500 note and the US$100 bill continue to rise, points out Sands.

States the paper: "Ideally, all high denomination notes would be progressively eliminated with restrictions on issuance and usage limiting substitution in the meantime. Combining elimination of high denomination notes with the introduction of policies to stigmatise and constrain their use, for example by limiting the maximum value of cash transactions, or forbidding the use of high denomination notes in certain environments, and to accelerate their removal from the system would further enhance the disruptive impact."

Such radical action would effectively disrupt the business models of the criminal elite, but would require a collective effort on behalf of the world's developed economices.

"Our proposal is for all the major issuers of high denomination notes to commit to eliminating them," the paper suggests. "This could be achieved through the G7 or G20 mechanisms. The G7 includes the issuers of the most significant high denomination notes, the G20 includes all the issuers of high denomination notes, bar Switzerland, Singapore and Hong Kong. They would need to be persuaded to join this action."

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Comments: (5)

Lu Zurawski - Lu Zurawski - London 08 February, 2016, 15:51

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Last time my family stayed at a posh hotel, the guy in front paid with a few 500EURO notes. My kids stared, pointed and openly discussed it. I think that's fair enough - if you see someone engaged in new or unusual payments behaviour (Apple Pay, say on the London Undergroud) its not impolite to be curious, to ask questions (and to be accidentally stigmatic).

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João Bohner - Independent Consultant - Carapicuiba 08 February, 2016, 21:23

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Nowadays you have the RFID technology.

You can embed an RFID chip in each note (they are smaller than a grain of sand) and track the route of each note electronically.

You don't need to eliminate the high denomination notes!

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Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 09 February, 2016, 17:51

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@JoãoBohner: I think it was tried and given up because not everywhere the notes go can be expected to have an RFID gantry, without which the RFID chip can't be read.

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João Bohner - Independent Consultant - Carapicuiba 09 February, 2016, 18:59

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@Ketharaman Swaminathan,

a NFC reader - Near Field Communication - is an RFID reader and is spreading swiftly.
And you do not need an RFID reader in each gantry.
When money leaves the bank, you know to whom 'those' notes are going to.
And when they return you know whom is returning 'those' notes.
What's more, the NFC readers can be used to track the notes in other places, outside of a Bank.
Of course, at first, tracing is not perfect, but it can identify many cases, restricting and inhibiting money laundering.

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Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 10 February, 2016, 08:22

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@JoãoBohner: You can force the physical movement of currency notes to happen via RFID gantries, thereby ensuring that the RFID chip in them is read and recorded. What's the compelling reason for an NFC-wielding recipient to scan the currency notes they receive? In any case, the point is moot because I strongly doubt if there's any ROI for any FI to implement either RFID / NFC systems. On the contrary, they make money when currency notes are banned and the transaction is forced to happen via card / equivalent method of payment that gives them interchange / equivalent fees.