Over the past month, one of the more alarming developments in Europe has been the move to eliminate high denomination bank notes like the €500 bill.

Indeed, as Bank of America reports, having changed its mind on the matter over the past few years, the ECB is now considering abolishing the €500 note. In a recent interview, Executive Board member Benoit Coeure said that “the ECB is assessing the fate of the €500 euro banknote, as concerns about its use in money laundering and crime grow and its usefulness for large payments comes into question” adding that “competent authorities increasingly suspect that they are being used for illegal purposes, an argument that we can no longer ignore.” (like all other ECB matters, there appears to be infighting on this issue too, and subsequently another ECB member Yves Mersch stated that the he would like to see “proof that high-denomination notes are used by criminals”).

So what, big deal, eliminate it. The people will still have 5, 10, 20, 50, 100 and 200 euro bills right.

Well, here’s the thing: the €500 note is the second highest currency denomination in G10, after the CHF1,000 note. More importantly, the total value of €500 notes in circulation amounts to €306.8bn and has been rising.

As a share of the value of total euros in circulation, the €500 note is the second-highest, after the €50 note.

In other words, if overnight the €307 billion worth of €500 bills were eliminated, the notional value of the entire amount of European physical currency in circulation would decline by 30% to €700 billion!

And there you have it: while it may not be banning all European cash outright, we are confident the ECB would be delighted if one third of it was to start, while pretending to be fighting financial crime, terrorism, corruption and dryg dealers. 

Of course, what Europe would be truly doing is setting the scene for ever more aggressive NIRP, and by removing the highest denomination bank notes, it would make evading negative that much more difficult and costly (albeit would certainly favor gold).