The European Central Bank stops issuing the largest euro banknote
Germany and its Alpine neighbors have accumulated the largest stocks of the largest European banknote. As "Russkaya Germaniya" notes, on average they are five times the volume of "five-hundreds" held by financial and credit institutions in any other Eurozone country. Therefore, in banks of the Federal Republic and Austria, you can get a 500-euro banknote not until January 26, 2019, as in the central banks of the other 17 Eurozone states, but until April 26.
"We made this decision also because the German Federal Bank and the National Bank of Austria issued most of the 500-euro banknotes," explains Johannes Beermann, a member of the Federal Bank's executive board, on the reasons for extending the deadline.
It is unknown whether demand for the largest Eurozone banknote will increase in the last months of its issuance. For the first time in the history of the single European currency, a banknote of a certain denomination is being withdrawn from circulation but retained as a means of payment. For as long as the euro exists, the 500-euro note will remain legal tender throughout the Eurozone – banks will accept the "five-hundred" on the same terms as all other banknotes. The exchange period for large notes will not be limited: even in 2025, the central banks of the current 19 Eurozone states will exchange them without limit.
The largest banknote is a popular way to store cash, but according to the European Central Bank's leadership, it is primarily used by criminals: it is a convenient tool for money laundering, tax evasion, financing illegal transactions, and terrorism. That is why in May 2016, the Governing Council of the European Central Bank decided to stop issuing the 500-euro banknote by the end of 2018. There will be no second generation of "five-hundreds" in the new "Europa" series of euro banknotes: on May 28 next year, it will be completed with the release of updated 100- and 200-euro notes, and the largest, purple-colored note will go down in history as unique and unrepeatable.
German financiers do not entirely agree with the decision to abandon the large banknote: serious research on the financing of terrorism and illegal cash transactions is mostly outdated, insufficiently representative, and does not cover all aspects of cash circulation. Many economists believe that European financial supervisory authorities know so little about the methods of settlement used by organized crime that the conclusion about the need to abandon large banknotes does not stand up to criticism.
Moreover, the development of alternative, anonymous electronic payment methods, such as cryptocurrencies (Bitcoin, Ether, and others), allows criminals to move cash flows online – which they have long been doing successfully.
Nevertheless, Europe is saying goodbye to the 500-euro note, although it is possible that the banknote may experience a renaissance at the last moment. After announcements of its discontinuation, the popularity of the "five-hundred" sharply declined: during 2016 and 2017, European financial institutions accepted more such notes than they distributed. In 2016, Europeans and visitors to the continent brought far more "five-hundreds" to banks than they received – the imbalance was 36 billion euros, and in 2017, 13.2 billion.
However, the situation changed in Germany: over the past year, the Federal Bank issued more 500-euro notes than it received, and in the outgoing year, the trend has strengthened not only in Germany but across the Eurozone: the volume of banknotes issued, according to the latest available data, exceeds the volume received by 3.6 billion euros in 2018.
Incidentally, Germany is in no hurry to get rid of old banknotes: according to the country's Federal Bank, 17 years after the introduction of the euro, 12.55 billion German marks remain in the hands of the population, of which 5.88 billion are in banknotes and another 6.67 billion in coins and pfennigs. The total number of banknotes still held by residents is about 166 million, and coins about 23 billion.
The vast majority of old money was exchanged shortly before and soon after the introduction of the euro – at the end of 2001 and the beginning of 2002. Since then, residents of Germany have brought between 70 and 100 million marks annually to the Federal Bank (only its branches handle the exchange of marks for euros). In 2018, the volume exchanged reached 86 million marks. Most often, people exchange 100-mark notes, followed by 500- and 1000-mark notes.
Unlike a number of other European countries that switched to the euro, the Federal Bank exchanges old notes and coins without any time limit.