ECB may phase out 500-euro banknote to tame black money

The European Central Bank is set to decide today the fate of the 500-euro banknote, which many people associate with money laundering, the black market and terrorist financing.

But its possible abolition is raising hackles in countries such as Germany.

The violet-coloured bill, the largest denomination banknote in the single currency area and physically also the bigger than the five other euro bills, is on the agenda of a meeting of the ECB's governing council, a bank spokesman told AFP.

Notwithstanding any surprises, the council is likely to vote to stop issuing them, as the bill is believed to be favoured by criminals for moving large sums of money around without the authorities knowing.

"Such notes are the preferred payment mechanism of those pursuing illicit activities, given the anonymity and lack of transaction record they offer, and the relative ease with which they can be transported and moved," according to a recent Harvard University study.

Because of its size and portability, the 500-euro note has become so prized in underground finance that it can trade at more than its face value, and has become known in some circles as a "Bin Laden", the study said.

The 500-euro note is "used more for hiding things than buying them," said French Finance Minister Michel Sapin in March.

"It is used more to facilitate transactions which are not honest than to allow you and me to buy food to eat," Sapin said.

France is pushing to step up the fight against terrorist financing in the aftermath of the bloody series of attacks in Paris in 2015.

The EU Commission had said in February that it would "explore the need for appropriate restrictions on cash payments exceeding certain thresholds and to engage with the European Central Bank to consider appropriate measures regarding high denomination notes, in particular the EUR 500 note." According to ECB statistics, the 500-euro bills account for just three percent of the total number of banknotes in circulation, but 28 percent of the total value.

Nevertheless, resistance to its possible abolition appears to be particularly high in Germany, where most people still prefer to make payments in cash.

And when the euro was created, it was Germany that had been keen to have a 500-euro bill because it was of a similar size denomination as its 1,000-deutschemark banknote.

Opponents of the note's abolition are concerned that it would simply be the first step in abolishing cash altogether and be replaced by electronic payment systems that can be completely monitored by authorities.