The share of cash in the amount of criminal transactions account for nearly 60% annually. In some types of criminal activity (e.g. drug trafficking) it is even higher — up to 80%. The main part of this amount account for big bills which are easy to transport. To this conclusion came a group of Governmental experts of the school. John F. Kennedy school of government at Harvard University. The study was led by Peter Sands, former CEO of British Bank Standard Chartered. The authors of the report note: the annual turnover of financial crimes worldwide is over $2 trillion, with only about 1% of this amount is discovered and confiscated by the authorities.
In the legal treatment of the big bills are insignificant: for example, within the United States cash payments of more than $100 make up only about 1% of their total number and 5% of the total. Sands offers an approach to solving the problem of “dirty money”, meaning that the largest banknote currently in the leading countries of the world. Their retirement is minimal harm to the government’s finances, but a blow to the shadow economy, he said.
The shadow economy
To withdraw from circulation the Sands offers banknotes in €500, $100, £50 and 1000 Swiss francs. The value of all banknotes in denominations of €500, for example, is 30% of all ECB printed cash (€322 billion), but in reality it is only 3% in the number of circulating banknotes. Because of its rarity and great roles in crime many Europeans, like the Sands have been called a bill of €500 “bin Laden”.
American banknotes of $100 total cost 78% of the total cash turnover, or just over $1 trillion. The prevalence of such notes in the United States are small: according to last year’s survey the Federal reserve Bank of Boston, only 5.2% of adult Americans hold such notes in the wallet, regularly using them. The remaining amount, according to Sands, or addresses outside the United States, or is used in illegal activities. According to various estimates, outside the United States apply to 25% (*.pdf) to 70% (*.pdf) all of currency issued by banks of the fed.
As the report acknowledges, the exact data on what percentage of large denomination bills are using criminals does not exist. Among the examples cited by Sands, the confiscation of $206 million notes at $100 in 2007 in Mexico city — the biggest ever seizure associated with drug trafficking money.
According to the expert of the Austrian University of Linz Friedrich Schneider, from 2003 to 2009 illegal cash transactions on 38 (at the time) OECD countries averaged $366 billion a year, or 57% of the total number of such transfers. To a lesser degree this applies to the segments of the oil trade (10% cash) and counterfeit products (30%), more drug trafficking (80%) and trafficking (50%).
In the USA alone the border service estimates the amount of cash coming across the border to Mexico to purchase drugs in a $20-30 billion annually. The smugglers transport the money to different caches, under clothing or even in your own stomach, so for them it is critical that the nominal of the bill was extremely high: often for these purposes, even on the American continent used banknotes in €500. While banning large denomination $1 million in banknotes of $20 will weigh 50 kg, and its transportation would be the four standard briefcase. The equivalent of $1 million bills for €500 will weigh only 2 kg. Conclusion large bills from circulation, according to the calculations of a group of Sands that can reduce the profits of criminals by 10-20%.
Against money laundering
The proposal of experts at Harvard reflects a General trend of increasing control over cash payments. An international Group of financial action against money laundering (FATF) also acknowledges the circulation of large denomination bills, one of the conditions conducive to criminal activity. In its recommendations, the panel calls on all countries “to implement such a system, in which financial institutions and intermediaries to report any domestic and international transactions above a fixed amount of cash or committed large denomination”. In early February, the Frankfurter Allgemeine Zeitung reported that German Finance Ministry is considering a ban on cash payments over $5 thousand In November, Switzerland has adopted new legislation through which the customer who made the purchase for the sum over 100 thousand francs, is obliged to provide the seller with their personal data to prevent money laundering.
In the FATF recommendation, however, is not the withdrawal from circulation of large banknotes. Some States do so on their own. In 1969 the US Federal Reserve’s “poor use” was withdrawn from circulation banknotes in denominations of $500, $1000, $5000, $10 thousand, and used only for interbank payments $100 thousand In 2000 stopped the circulation of the banknote in 1000 canadian dollars — the authorities already came to the conclusion that it is used mainly by criminals. A decade later in Canada remained up to a million banknotes of this denomination, but they turn between criminal groups, acting as a debt, to trade that for bills of smaller denomination, without attracting attention, it is impossible. Since 2010, UK banks do not accept for exchange banknotes in €500, and from the autumn of of 2014 stopped to see the most expensive banknote in the world — 10 thousand Singapore dollars — at the current rate of $7.2 thousand Monetary authority of Singapore stopped its release, citing “risks associated with large volumes of cash transactions in Bank notes of large denominations”.
In 2013, the European authorities have already commented on the likely withdrawal from circulation of banknotes of €500. Then the Vice President of the ECB Vitor Constancio, speaking to MEPs, said that the measure was “worthy of discussion” because the bill in such high esteem “is not typically used” in common parlance. Since then, this initiative has not found.
Bills in the digital economy
The use of cash in the world has already started to decline, evidenced by last year’s review of the Bank for international settlements 19 leading economies. From 2010 to 2014 inclusive the use of cash has dropped from 8.4 to 7.9% of world GDP. Sweden is the only OECD country where the absolute value of cash in circulation is steadily declining — from 3% of GDP in 2010 to 2.1% in 2014.
Scandinavia may be the first States fully renounced the circulation of cash, predicted in October, the experts of the Swedish Royal Institute of technology. So, five of the six largest Swedish banks hold only non-cash transactions. At the same time Nordea (one of the largest banks in the Nordic region, managing over €260 billion in assets) announced that 20 of its offices in Norway will accept cash only one office located at the Central station of Oslo.
At the same time, regardless of the role of large banknotes in the financing of crime and from the introduction of digital technologies in the circulation of money, the demand for cash in the foreseeable future will remain stable, experts believe the Bank of England. In its report for the third quarter of 2015, they emphasize that the future cash depends on several factors. The availability of alternative methods of payment, policy banks and shops in the reception of funds, the government policy of substitution or cash support, socio-economic development.
“The Bank of England survey 2014 showed that many buyers prefer cash payment as it is fast, versatile, anonymous, helps to better manage personal budget and immune from technical faults,” — said in a quarterly Memorandum to experts of the Bank of England for the 3rd quarter of 2015. Over the past 20 years since 1995, the cost of cash supply in circulation in the UK increased by more than three times, reaching £billion and 62.6 reduce the demand for cash, experts do not predict, advising the Bank of England to continue to invest in the printing of banknotes and coins.