The demand for high euro banknote denominations: Where does it come from? Henk Esselink European Serious Organised Crime Conference Liverpool, 5 March 2008

Observed and forecasted development euro banknote circulation from 1991 to end-2007

Circulation development of the denominations of the legacy currencies and euro denominations

Facts on high denomination banknotes of legacy and other currencies In BE, DE, IT, LU, NL, AT legacy banknotes with a value > EUR 200 were in circulation Share in circulation value ranged from 35% to 50% (IT: 15%) CHF 1000 (≈EUR 622) share in circulation of 56% USD 100 share in circulation of 70% €500€200€100€50€20-€5 Growth value in %1.90%8.30%8.90%5.04% Share in volume end %1.3%10.0%36.7%48.3% Share in value end %4.6%17.9%32.8%11.2% DEM 1000DEM 500DEM 200DEM 100DEM 50 - DEM 10 Share in value34.1%10.1%2.7%38.9%14.2%

Issued and returned €500 banknotes by National Central Banks

Findings on high denomination banknotes Share of high euro denominations in circulation is not unusual € 500 mainly issued by the central banks of Germany, Spain, Italy and Austria The largest net-outflow of €500 is from Germany, Spain and Luxembourg An average €500 banknote returns only once every two years to a central bank (€50: 2.5 times per year; €10: 5 times per year)

Non-resident demand: sales and purchases of euro banknotes by wholesale banks Purchases January-October 2007 €37 billion (2006: € 44 billion) Sales January-October 2007: €47 billion (2006: €43 billion)

What do we know about the use of €500? Between 10% and 20% of euro banknotes circulate outside the euro area (USD around 60% abroad) Many wholesale banks report that around 70% of the value of the sales is in €500 €500 used for several legal reasons; especially hoarding and transactions outside the euro area The use of cash and the €500 in the grey and underground economy is difficult to estimate Tracing €500 banknotes via serial numbers is very difficult The ECB is currently conducting a study on the use of the €500 and €200

Some points for discussion Which banknotes are mostly found at drug seizures or when criminal gangs are rounded up? Is there any evidence that euro banknotes are increasingly being used by criminals? Does the easier handling of the €500 and €200 offset the higher suspicion related to the use of these notes? Does the availability of €500 banknotes facilitate criminals’ work? Can data on cash flows help to understand the origin of criminal proceeds?

Questions? Tel: