- A question: What weighs 5 pounds and fits into a normal briefcase?
- The answer: One million dollars in €500 notes.
Correspondingly (below), to transport $1 million, you could easily carry 22 pounds of U.S. hundred dollar bills in a normal briefcase. However, if you had to use twenties, you would need four briefcases and the ability to lug 110 pounds.
Where are we going? To changing our money supply.
Large Denomination Bills
The €500 note has been called the Bin Laden. Large and light, it is a handy way to finance international terrorism according to monetary gurus who want to eliminate it. ECB President Mario Draghi, the person who can make it happen, has signaled “he’s ready to scrap it.” Meanwhile across the Atlantic, former Treasury Secretary Lawrence Summers wants us to trash the $100 bill.
The people who want large denomination bills to exit the money supply focus on the underground economy. Referring to tax evasion and illegal transactions, they emphasize that its users are up to no good. With judicial enforcement a daunting task, they say we could better fight the battle with less cash. Statistically, we can see the anomaly. The €500 note accounts for one-third of the value of all euro banknotes and yet most shops refuse to accept it for transactions…except in Germany.
And that takes us to the cons.
Germany has a tradition of using cash.
With German wallets holding almost twice as much cash as ours in the U.S. (interesting), a German shopper is more likely to use bank notes. Asked why, one survey indicated they like the anonymity and the spending control cash gives them. Opposed to anyone taking away their cash, the German tabloid Bild has been waging a “hands off our cash” campaign. Confirming the German position, Jens Weidmann, the Bundesbank president, says no.
Our Bottom Line: Money Supply
Including rectangular pieces of paper, checking accounts) and seashells, money is any commodity that has these characteristics:
- It should be a medium of exchange. (People willingly use the commodity for exchange.)
- It should be a store of value. (In the future, it still will have relatively comparable purchasing power.)
- It should be a measure of value. (When someone says one dollar, you know what that means.)
Perhaps the characteristics of money tell us why most French shopkeepers refuse €500 banknotes.
