Cash Money Isn’t Dead Yet

The 500 Euro note is sometimes called “The Bin Laden”, but that moniker has nothing to do with the bill’s supposed role in funding terrorism. Recall that the euro currency began life in the early 2000s, just when Osama Bin Laden was the most wanted man on the planet. Everybody knew what he looked like, but no one (even in Afghanistan) would fess up to actually seeing him. And so it was with the 500 Euro note – if you had them, the thought went, you weren’t going to talk about it.

Still, the European Central Bank got a lot of heat for printing 500 Euro notes, mostly because the total amount in circulation exceeded 300 billion euros at the start of 2016, enough for every European to have 2 of them. A wide array of economists and policymakers worried that such a trove facilitated tax evasion, money laundering, human trafficking and a range of other undesirable activities. As a result, the ECB has been removing 500 Euro notes from circulation last year. As of November 2017, the total amount outstanding was down to 255 billion euros.

But here’s the funny thing: the ECB has simultaneously been ramping up circulation of 100 euro notes to make up the shortfall. The total amount outstanding for this denomination as of November 2017 is 259 billion euro, or 47 billion euros more than the start of 2016. So much for the ECB taking down their total amount of high denomination notes…

To us, this is a story with three lessons:

  • There is still strong global demand for cash money as a store of value. Paper currency may be bulky and require secure storage, but there is a sizable market for it.
  • There are two primary providers for this “Product”: the Federal Reserve $100 bill and the ECB’s 100 Euro note (now that the 500 Euro note is out of commission). The US offering has dominant global market share, with $1.2 trillion outstanding. But the ECB isn’t giving up just yet, evidently.
  • Crypto currencies like bitcoin are essentially the digital analog to the $100 bill and 100 Euro note, with the advantages of portability and security (if held offline). The uptake for 100 euro notes is a telling anecdote about the global demand for currency as a store of value, and the growing popularity of crypto currencies reflect the same fundamentals.