STAFF NEWS & ANALYSIS
Will EU Wipe Out the Value of Big Euro Notes? A Case Is Being Built …
By Staff News & Analysis - April 15, 2013

Bin €500 notes to spread debt burden … The €500 note is one of the many mysteries surrounding the birth of the euro. For whom, exactly, was the equivalent of $600 or £400 designed? No other significant currency is available in a form that allows £1m-worth to be comfortably carried in a briefcase and which is effectively non-negotiable in everyday use. – Financial Times

Dominant Social Theme: Only criminals use cash.

Free-Market Analysis: Here's an innovative idea … let's print a lot of money and then declare it worthless. This seems like a Western trend these days. At least the "worthless" part.

Turns out that certain Cyprus bank accounts were worthless, or at least not worth as much as the owners thought they were. In fact, the "owners" got a lesson regarding ownership. Just because your name is on something … like a bank account … doesn't mean it's yours.

And now we are seeing the same sort of message being delivered in terms of currency. Turns out even when you HAVE the currency, you may not be able to take advantage of its liquidity. Here's more from the article excerpted above:

The Spanish used to dub the notes "Bin Ladens", because everybody knew they existed but nobody had ever seen one. Now Bank of America Merrill Lynch's Athanasios Vamvakidis has proposed a rather scary way to use them to solve – or at least dramatically reduce – the euro-crisis. The €500 notes in issue add up to about €290bn, one-third of the face value of all euros in circulation. The European Central Bank estimates that two-thirds of those €500 notes are used as a store of value (rather than as a medium of exchange).

We can guess whose value they store – the UK's Serious Organised Crime Agency estimates that 90 per cent of the €500 notes in Britain are held by criminals. Curiously, the outstanding proportion of the notes in the eurozone is falling slightly, which suggests the smarter villains are moving into other stores of value. Perhaps they have also thought of Mr Vamvakidis's idea. He suggests that the ECB call in the whole lot and that beyond a certain date in the near future the notes should become worthless. Anyone handing in a bulging briefcase before that date could be asked to reveal just which casino they got so lucky in, before being allowed to deposit the cash.

Understandably, the ECB will admit to no such plan, but after the tarring and feathering of big depositors in Cypriot banks, it's not quite as whacky as it sounds. Until now, the pain of the west's banking crisis has been borne by innocent taxpayers, but as it goes on, others will be forced to "burden share" (as the official language puts it).

Quite a few of the legitimate holders of wads of €500 notes were on the other side of the trades which busted the banks in the first place, getting bankrolled for some ambitious property deal, for example. The argument that they should repay some of their debt to society would be music to the ears of desperate governments everywhere. If, say, one-third of the notes are not presented in time, the ECB's liability would be cut by a very handy €100bn. Oh Mr Vamvakidis, what have you started?

Notice the lighthearted way that the Financial Times reports on the idea of rendering a vast swath of currency worthless. From our humble perspective, it is no laughing matter.

It would seem to set yet another horrifying precedent to us: If government deems that certain financial holdings are being utilized by organized crime, this article seems to imply that government officials are then within their rights simply to wipe out the entire asset class.

Not only that, but we notice that a further justification for cancelling the large euro note has to do with a suspicion that such note holders helped "bust banks" and that by doing so, these individuals owe a "debt to society."

This is merely the language of confiscation. The public conversation seems to be moving away from anything resembling rationality, and every day we see more and more justifications for naked authoritarianism.

It was bad enough when governments somehow decided that they were not going to print bills in large denominations anymore, thus forcing people into electronic transactions.

Apparently, anything that government does, it can undo. There is, after all, no inviolable contract between citizens and their lawfully elected demos.

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