Former Treasury secretary recommends end to $100 note
- Published: Feb 26, 2016, 10 AM
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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