Lawrence Summers calls on United States to end the $100 note

Former Treasury secretary recommends the elimination of high-denomination notes
By , Special to Coin World
Published : 02/26/16
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The proposal a few weeks ago by authorities in Europe to eliminate the €500 note has had a jump-on-the-bandwagon effect in some quarters, nowhere more so than the op-ed page of the Feb. 16 Washington Post. There, Lawrence H. Summers, Harvard professor, former director of the White House National Economic Council and secretary of the Treasury from 1999 to 2001, upped the ante by supporting the action on the euro and by calling on the United States to eliminate the $100 note and for a global agreement to stop issuing notes worth more than $50 or $100.

Summers cites a recent paper from a business and government program at Harvard’s Kennedy School arguing that there is a link between high-denomination notes and crime and that “illicit activities are facilitated when a million dollars weighs 2.2 pounds as with the 500 euro note rather than more than 50 pounds as would be the case if the $20 bill was the high denomination note.” The study also says that technology has reduced the need for high-denomination notes. He did not mention that about two-thirds of $100 bills circulate outside the United States.

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Summers admits that withdrawing notes from circulation is a bit extreme and that eliminating the €500 note is more important than the $100 issue, since it is six times more valuable. He focuses most of his ire on tiny Luxembourg, with “its long and unsavory tradition of giving comfort to tax evaders, money launderers, and other proponents of bank secrecy and where 20 times as much cash is printed, relative to gross domestic, compared to other European countries.” He did not mention that the Bundesbank, Germany’s central bank and Europe’s largest, is against any changes.

Summers also said that if Europe did something, pressure could then be put on Switzerland and its 1,000-franc note (worth about $1,010). That same day, in what could be a rebuke, the Guardian reported that the Swiss National Bank said it had no plans to follow Europe and its big note would continue to circulate. In 2014 the 1,000-franc note made up a bit less than 10 percent of Swiss bank notes but 61 percent of the total value of cash in circulation. A posting on the bank’s website said that a lot of large denomination notes are used not for payments but “as a store of value.” 

Peter Djinis, who was a financial crime regulator at the Treasury under Summers, said his ex-boss’ proposal was draconian and a silly solution to a difficult problem and it is more important for institutions to report suspicious activities. As for elimination of the $100 note, he said “At a certain point, the potential inconvenience of cash may force people into utilizing other forms of payment that may not be as secure, such as Bitcoin.”

The New York Times said, “There is no need for large-denomination currency” in a Feb. 22 editorial. 

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Older Comments (1)
I'm very critical of the motivations for elimination of cash. I decided to write my own article about, that also mentions another Coin World article by Arthur L. Friedberg:

Something I didn't explicitly say in my article, but probably should have, is governments trying to do shake-downs on people to seize their fiat is probably going to backfire and cause a rejection of fiat, which is far more likely than mere submission. India learned this lesson when they devalued some of their fiat. People just started hoarding gold instead, and then the government decided to start seizing the gold too.

Things don't go well when the governments take on that kind of role, because nobody prospers. Capitalism is about freedom and prosperity. Government already has plenty of means to place tax burdens on prosperity. When governments try to cut out the prosperity part of the equation, and go directly for the money-grab, things fall apart quickly.

A healthy society has a government that thrives when prosperity thrives. Any other kind of government is indistinguishable from the usual murdering and thieving of smaller organized crime groups.