Speaker 1: There are thirty three hundred dollar bills for every man, woman,
Speaker 1: and child in the US, So if you've only got one,
Speaker 1: somebody else has your other two. Hi, and welcome back
Speaker 1: to Bloomberg Benchmark, a show about the inner workings of
Speaker 1: the global economy. I'm Tory Stillwell and economics reporter for
Speaker 1: Bloomberg News in d C. And I'm joined by my
Speaker 1: co host Akido, our Benchmark editor in San Francisco. Hey Hockey,
Speaker 1: Hey Tony, how's it going pretty good? I am recording
Speaker 1: today out of our newsroom, so you may hear a
Speaker 1: little bit of background noise. Oh well, I'm recording from
Speaker 1: San Francisco for the first time in I think four months.
Speaker 1: Oh wow. Yeah, welcome back, and it's good to be back. Yeah,
Speaker 1: thank you so much. Well, today's show is all about
Speaker 1: Dolla dolla bills, y'all, Dolla dollar bills. Yeahs. But the
Speaker 1: European Central Bank last week said it would stop producing
Speaker 1: their five hundred euro bank notes after citing concerns that
Speaker 1: it could facilitate illicit activities some criminals. Actually, they refer
Speaker 1: to this note as the bin laden, referring to the
Speaker 1: I was just I wrote that in my notes isn't
Speaker 1: that so interesting? I mean, I feel like that says
Speaker 1: a lot about this. That's the former leader of al Qaeda.
Speaker 1: For all of our listeners out there, I don't I
Speaker 1: don't know how you wouldn't know who' been latin this,
Speaker 1: But in case you don't, yeah, good context. Well anyway,
Speaker 1: that decision has been fairly controversial. And you know, Germany,
Speaker 1: since apparently before even the creation of the Eurozone, has
Speaker 1: been a big proponent of high denomination notes, and the
Speaker 1: head of the country's central bank just recently said that
Speaker 1: it's still debatable whether the removal of the five year
Speaker 1: old note is going to curtail any crime, and that
Speaker 1: it actually might end up undermining people's trust in cash.
Speaker 1: And apparently officials in Austria and also Switzerland are against
Speaker 1: eliminating their own forms of high denomination money too. So
Speaker 1: to discuss all of this and more, we have enlisted
Speaker 1: Peter Sands, whose paper called making It Harder for the
Speaker 1: Bad Guys has helped fuel this debate. He's a senior
Speaker 1: fellow at the Harvard Kennedy School, and before that, he
Speaker 1: was CEO of Standard Chartered Bank for almost ten years.
Speaker 1: Welcome Peter high So Peter, as the head of a bank,
Speaker 1: I'm sure that you've seen your fair share of high
Speaker 1: denomination notes, right. Actually, cash doesn't play much role in
Speaker 1: modern banking. I mean, obviously you take it out of
Speaker 1: a t m S and people deposited in branches, but
Speaker 1: most of what a bank does doesn't actually involve cash.
Speaker 1: So in a lot of ways, this was kind of
Speaker 1: a foreign world to you. Well, certainly, the rather murky
Speaker 1: world of people trying to move money across borders in
Speaker 1: sort of piles of high denomination notes was not something
Speaker 1: I've come across. You're not an international criminals, Peter. Maybe
Speaker 1: you could walk us through a summary of your research
Speaker 1: for our listeners and then we can dig through some
Speaker 1: of the details afterwards. The my interest in high denomination
Speaker 1: notes is because they aren't used very much in everyday life.
Speaker 1: We don't normally take a five hundred dollar five euro
Speaker 1: note out of our pocket and try and buy a
Speaker 1: coffee with it. But if you look at what criminals
Speaker 1: are doing, drug traffickers, people financing terrorism, people giving all
Speaker 1: receiving bribes, actually they're using these notes very intensely. So
Speaker 1: the point of my research was to look at whether
Speaker 1: or not we should still be issuing these or whether
Speaker 1: we should get rid of them, not because it would
Speaker 1: suddenly stop criminal activity, but it would simply, as the
Speaker 1: title of the paper put it, make the lives of
Speaker 1: the bad guys a bit harder because the great advantage
Speaker 1: of high denomination notes is that they are the most
Speaker 1: anonymous and easy way to transport and store money secretly
Speaker 1: if you if you want to do something illegal, right,
Speaker 1: and we're talking about people who are trying to evade taxes, finance, terror, corruption,
Speaker 1: financial crimes, those types of bad guys, I guess anybody
Speaker 1: who wants to do something that they don't want anybody
Speaker 1: in authority to know that they are doing. And the
Speaker 1: great thing about cash is that cash is anonymous and
Speaker 1: it leaves no record, and there's no other payment mechanism
Speaker 1: that does that it. So for I guess some context
Speaker 1: for our listeners who haven't tried to move a large
Speaker 1: amount of money around anonymously. A million dollars worth of
Speaker 1: twenty dollar bills apparently is about a hundred and ten pounds,
Speaker 1: which would fit in about four briefcases. So think of
Speaker 1: that as maybe carrying tories entire body weight around. It's
Speaker 1: quite a lot would be able to do that one person.
Speaker 1: I would find it pretty hard, and you certainly couldn't
Speaker 1: do it very discreetly. Right, Yeah, But if you tried
Speaker 1: to do that with one hundred dollar bills, that would
Speaker 1: only be twenty two pounds and it would fit in
Speaker 1: a single briefcase. So it's a totally new ball game. Right.
Speaker 1: And if we look at the five hundred euro notes
Speaker 1: that we're just announced that they're going to be phased out,
Speaker 1: a million dollars a million US dollars that is weighs
Speaker 1: about five pounds, and that would fit in a you know,
Speaker 1: a very small bag. So it's a it's like you said,
Speaker 1: it's a total game changer. Yeah, and surprise, surprise, if
Speaker 1: you look at what cocaine smugglers are using, uh, they're
Speaker 1: preferred is the five year note, and then after that
Speaker 1: they quite like the hundred dollar bill. But give them
Speaker 1: a choice, they'll use the five euro because they can
Speaker 1: get more money in a smaller package, are less easy
Speaker 1: to sort of find package, they can transport it more easily. Peter,
Speaker 1: I think a lot of our listeners are hearing this,
Speaker 1: and you know, they're thinking, like, gosh, this sounds like
Speaker 1: a relatively easy and simple thing for governments to do. So,
Speaker 1: you know, can we get any kind of sense on
Speaker 1: how much of an impact maybe getting rid of the
Speaker 1: one dollar bill would have on cutting crime, on on
Speaker 1: how much more taxes the I R s might be
Speaker 1: able to collect. Well, it's very difficult to get a
Speaker 1: precise calculation, and a lot depends on how easy it
Speaker 1: is for the criminals to find substitutes. So if, for example,
Speaker 1: we get rid of the five hundred euro note as
Speaker 1: as it is proposed, just to stop issuing it, but
Speaker 1: the European Central Bank just ramps up production of the
Speaker 1: two hundred euro note, then the impact will be less
Speaker 1: than if it forces people, to, say, use the hundred
Speaker 1: euro note. So it depends somewhat on sort of how
Speaker 1: the policy is implemented. But I think we can be
Speaker 1: pretty confident that there will be a positive impact, and
Speaker 1: it will be most positive whether stakes are high. So
Speaker 1: it won't make much difference if somebody is just trying
Speaker 1: not to pay tax on a very small amount of money,
Speaker 1: because they're probably not using higher denomination notes anyway. But
Speaker 1: if they're trying to not pay tax by taking say
Speaker 1: cash income um and not reporting it on tens or
Speaker 1: hundreds of thousands of dollars, then that is more likely
Speaker 1: to be affected by not having high denomination notes. And likewise,
Speaker 1: you know, drug trafficking is probably the crime that involves
Speaker 1: most cross border transportation of very large sums of money.
Speaker 1: It's been estimated that about thirty billion dollars a year
Speaker 1: crosses the US Mexico border in cash. You just have
Speaker 1: to think about it very simply. If you didn't have
Speaker 1: a hundred dollar bill and you had to carry either
Speaker 1: fifties or twenties, you'd have two to five times as
Speaker 1: many packages things hidden in the floors of cars, you know,
Speaker 1: secret containers going across. So the cost of doing that
Speaker 1: for the criminals and their risk of detection would be higher. Um.
Speaker 1: And what's funny is people are quite reluctant when you
Speaker 1: first suggest getting rid of these things. People are a
Speaker 1: bit sort of anxious and you know, a bit uncertain
Speaker 1: about it. But nobody's proposing to bring any of the
Speaker 1: things that have been eliminated back again. Right once they're gone,
Speaker 1: nobody wants them back again. You know that there's some
Speaker 1: of those notes five hundred thousand dollars, five thousand dollars,
Speaker 1: ten thousand dollar bills. They're actually all still legal tender
Speaker 1: and there some of them are still in circulation. Just
Speaker 1: if the FED finds them, they like gobble them up
Speaker 1: and destroy them and take them out. Oh my god. Yeah, absolutely,
Speaker 1: they haven't been brought back. When when was the last
Speaker 1: time you used one hundred dollar bill? Oh gosh, um,
Speaker 1: you know, I think I maybe took out one hundreds
Speaker 1: when I went to Iceland a year ago. You were
Speaker 1: traveling to Yeah, I was traveling. That's the only time
Speaker 1: I ever take out money that big. Well, there are
Speaker 1: thirty three ish around thirty three at least over thirty
Speaker 1: hundred dollar bills for every man, woman, and child in
Speaker 1: the US. So if you've only got one, somebody else
Speaker 1: has your probably outside of the US too, right, A
Speaker 1: lot of these bills aren't inside the country, that's right.
Speaker 1: We don't really know how much, but it's probably over
Speaker 1: them ah um, outside the US. Indeed, it's been suggested that, um,
Speaker 1: the city in the world which probably has most of them,
Speaker 1: um is probably Moscow, but again we don't know that
Speaker 1: for certain. Well, we're going to take a short break,
Speaker 1: but when we come back, we will talk about how
Speaker 1: emerging markets are dealing with high denomination bills, as well
Speaker 1: as some of the CONTs behind taking them out after
Speaker 1: this break. So, Peter, one of the interesting points that
Speaker 1: you make in your paper is that a lot of
Speaker 1: these criminal transactions don't happen inside the US, inside US territory,
Speaker 1: but they're occurring in US dollars. So when government officials
Speaker 1: in India or say Pakistan want to fight drug track,
Speaker 1: drug trafficking or corruption, uh, the existence of one hundred
Speaker 1: dollar bills makes it that much harder for them to
Speaker 1: actually fight that. UM. So I'm wondering, do you know
Speaker 1: if any emerging market officials have urged the US have
Speaker 1: urged US government officials to get rid of one hundred
Speaker 1: dollar bills? And has something like this ever been on
Speaker 1: the G twenty agenda. I don't know whether um uh
Speaker 1: there have been specific conversations from emerging market government officials
Speaker 1: um uh to the US. I know that UM that
Speaker 1: emerging market sort of crime fighting officials UM are very
Speaker 1: aware of the role let's say the hundred dollar bill plays,
Speaker 1: whether it's in drug trafficking or corruption um or and
Speaker 1: so on. And I would be surprised if those conversations
Speaker 1: UM haven't been happening. Um. And I'm aware that this
Speaker 1: discussion around the role of high denomination notes has been
Speaker 1: discussed in various forums in the context of terrorist finance
Speaker 1: and also in the context of corruption. Mm hmm. So
Speaker 1: these operators of you know, global common currencies like the
Speaker 1: US and Europe, they kind of have this global responsibility
Speaker 1: to Yeah, I would argue we do have a global responsibility.
Speaker 1: Most emerging markets don't actually issue high denomination notes themselves, um,
Speaker 1: But the high denomination notes are in use in their
Speaker 1: own economies, um, in ways that are often quite sort
Speaker 1: of corrosive to their societies. Right, So this seems kind
Speaker 1: of like a slam dunk to me. Why why are
Speaker 1: some people opposed to this? Well, I'm sympathetic to the
Speaker 1: argument that cash still plays a really important role. It's
Speaker 1: incredibly convenient. It works when you don't have a electricity
Speaker 1: or telephone signal. It works when you want to give
Speaker 1: you a child pocket money. You don't need any infrastructure,
Speaker 1: and it is private and there's real value in that. However,
Speaker 1: that's really useful in the many small transactions we're doing
Speaker 1: sort of every day, and the reality is we're not
Speaker 1: using high denomination notes for it. And if you need
Speaker 1: high denomination notes in that kind of circumstance, the evidence
Speaker 1: would suggest that you're normally doing something which society probably
Speaker 1: doesn't want you to do it privately, right, you're probably
Speaker 1: being sketchy a little bit. Yeah, I mean, you know,
Speaker 1: if you need five eur notes to make a payment, UM,
Speaker 1: you're probably buying something or selling something in thousands or
Speaker 1: tens of thousands or Europe. The the likelihood is that
Speaker 1: there should be some tanks attached to that, UM, and
Speaker 1: you know, it may be a bit of a dubious transaction.
Speaker 1: And I know as a kid, I mean I always
Speaker 1: personally liked it when I got my money in smaller bills,
Speaker 1: like for gifts, because it always made me feel like
Speaker 1: I was getting more, even though obviously I wasn't you know, Peter,
Speaker 1: your your paper came out in February and Larry Summers,
Speaker 1: who UM is the former Treasury secretary. He wrote a
Speaker 1: very influential op ed about it back in your argument,
Speaker 1: and the ECB just last week came to this decision
Speaker 1: to stop issuing their five euro notes. Do you feel
Speaker 1: like your argument is gaining traction in the US. Well,
Speaker 1: it's certainly gaining traction in Europe. As you have noticed, UM,
Speaker 1: I think UM the US has been watching to see
Speaker 1: what Europe would do, and there's so much of it
Speaker 1: out there. The three hundred billion euro of five hundred
Speaker 1: euro notes, there's a trillion dollars of there's over a
Speaker 1: trillion dollars of hundred dollar bills. But but given that
Speaker 1: the five hundred euro note was the the obvious starting point,
Speaker 1: that's where the attention has been focused. But I think
Speaker 1: it is important in the US to be very thoughtful
Speaker 1: about what the role is of the hundred dollar bill. Um.
Speaker 1: Do you really need thirty three hundred dollar bills for
Speaker 1: um everybody in America? It does seem it does seem
Speaker 1: an awful lot. The Swiss particularly have been a little
Speaker 1: opposed to this idea. You know, some of the officials
Speaker 1: there have argued that the right to pay anonymously is
Speaker 1: a basic liberty and that people are using, um, the
Speaker 1: one thousand franc notes. They're arguing that there you're use
Speaker 1: not only the means of payment but also as a
Speaker 1: store of value. Can you explain to us exactly what
Speaker 1: they mean by that and whether or not that's a
Speaker 1: convincing argument Frankly, I think we should get rid of
Speaker 1: the one. The Swiss should get rid of the one
Speaker 1: thousand Swiss franc um no, because I suspect it's largely
Speaker 1: used UMU to store value, but to store value which
Speaker 1: has been illegally obtained in one way or rather through
Speaker 1: tax evasion or some form of crime or corruption. And yes,
Speaker 1: there maybe some people who choose to hold their savings
Speaker 1: sort of under their bed, but A you've got to
Speaker 1: be pretty wealthy to really need to do it in
Speaker 1: thousand Swiss franc notes right that for it to make
Speaker 1: a difference between doing it in the hundreds and thousands,
Speaker 1: you've got to be storing a serious amount and be
Speaker 1: you've got to ask the question of well, why is
Speaker 1: it that somebody is so keen for it not to
Speaker 1: be recorded in the banking system. And I'm wondering, Peter,
Speaker 1: when this idea came to you in the first place.
Speaker 1: Was it when you were running Standard Chartered or was
Speaker 1: it a little bit later? Well, it could to me
Speaker 1: when I was still out Standard charldhood, but um I
Speaker 1: didn't have the time to do very much UM about
Speaker 1: it as an idea. UM And so when I came
Speaker 1: to Harvard. I thought, well, I should focus on this
Speaker 1: and see whether it is such a good idea as
Speaker 1: it sort of seemed to me to get rid of
Speaker 1: these notes, um. And that's why I worked with a
Speaker 1: bunch of a group of graduate students here to do
Speaker 1: research into the different high denomination notes in the world
Speaker 1: and also the role that these different notes played in
Speaker 1: different forms of illicit activity. And after all that research,
Speaker 1: it turned out to be just as good as an
Speaker 1: idea as you thought it would be. Well, if anything,
Speaker 1: it turned out to be a better idea, because the
Speaker 1: more we looked at it, the more we came to
Speaker 1: the view that really people went you seeing these notes
Speaker 1: very much, they don't play a significant role in normal,
Speaker 1: everyday economic activity um. And therefore the downside of getting
Speaker 1: rid of them seems incredibly limited. And yet, on the
Speaker 1: other hand, almost every seizure of illegal cash, be it
Speaker 1: for corruption or drugs or whatever, involves these higher denomination notes.
Speaker 1: So when you've got something which is being used a
Speaker 1: lot for bad things and not being used a lot
Speaker 1: for good things, and it is something that is produced
Speaker 1: by the state, it's not a sort of natural thing.
Speaker 1: It's a it's something that the government produces. You've got
Speaker 1: to ask, why are we producing something that makes life
Speaker 1: easier for criminals and so and and it's a very
Speaker 1: it is actually a very easy policy to implement, and
Speaker 1: in the world of fighting crime, most things are quite
Speaker 1: difficult to do, whereas turning off a printer is a
Speaker 1: pretty simple policy. Is there a chance that I mean
Speaker 1: this would save us money or cost us for mean
Speaker 1: terms of eliminating these bills, Well, you you you lose
Speaker 1: a bit of money, um if you're the central bank,
Speaker 1: from what's called senor ridge, which is the interest that
Speaker 1: central banks earn on money they've issued. Essentially, when you
Speaker 1: hold a note in your pocket, it's an interest free
Speaker 1: loan to the government. But that's a pretty small amount
Speaker 1: when interest rates are as low um as they are
Speaker 1: at the moment, and actually in the many places now
Speaker 1: that interest rates are becoming negative, it's a it's a
Speaker 1: negative loss. So it's that that really isn't a problem.
Speaker 1: But I think that is more than offset by the
Speaker 1: increased tax take. You don't have to assume very much
Speaker 1: in terms of um greater tax payments from people who've
Speaker 1: been using cash to avoid paying tax to more than
Speaker 1: offset any potential loss from um Senior Ridge. And then
Speaker 1: of course any reduction UM in the sort of massive
Speaker 1: flows of money involved in crime has to be a
Speaker 1: significant social benefit. Great well, Peter, this has been an
Speaker 1: awesome conversation. Thanks so much. And if anyone has some
Speaker 1: five hundred euro notes that they would like to not
Speaker 1: have on their hands anymore, just contact us. I'm at
Speaker 1: two zero two four s too willing to fly send
Speaker 1: it over in a briefcase. Thanks Peter, Thanks very much.
Speaker 1: Thank you so, Tori. I thought that was a really
Speaker 1: fascinating conversation, and you know Peter's paper over fifty pages,
Speaker 1: was fascinating to what did you learn? Well, I learned
Speaker 1: that there is a lot to write about on this topic.
Speaker 1: As you said, his research is extremely thorough, Um. But
Speaker 1: I just think here the most fascinating thing is just
Speaker 1: the sheer size and bulky nous that cash has and
Speaker 1: what sort of equality that is to it, Especially when
Speaker 1: you think of cutting out those big denomination bills. It
Speaker 1: suddenly becomes a lot harder to do things that you
Speaker 1: probably shouldn't be doing. But I think the the other
Speaker 1: side of the story here has a really big point,
Speaker 1: which is how much, say, do we want the government
Speaker 1: to have over how we pay for things, how we
Speaker 1: conduct private business. Mm hmm, yeah, I mean that doesn't
Speaker 1: really concern me a whole lot. I would love to
Speaker 1: live in a cash list society. Really, what if I
Speaker 1: mean they tapped into all your stuff and saw that,
Speaker 1: like you've then moaned me for like a drunken braunch
Speaker 1: one day, and then that got leaked to vand and
Speaker 1: then Dan was like, wait what, I don't know. I mean,
Speaker 1: I don't think the government cares very much whether I
Speaker 1: had a drunken brunch or not, but maybe point taken.
Speaker 1: And and you know, so when I recently spent three
Speaker 1: months in Japan, and Japan's like a super cash heavy society,
Speaker 1: and I was always running to the A t M
Speaker 1: because so many places don't take credit cards, um, and
Speaker 1: I constantly had to be walking around with like, you know,
Speaker 1: fifties sixty thousand yen in my wallet, which you know
Speaker 1: in Tokyo. Tokyo is a pretty safe society, so it's fine,
Speaker 1: but it made me feel uncomfortable. Yeah, I can totally
Speaker 1: understand that. Well, lots of good arguments on both sides,
Speaker 1: and will be really interesting to see if this gains
Speaker 1: traction here in the US now that Europe is doing
Speaker 1: something about it. Yeah, definitely Well. Benchmark will be back
Speaker 1: next week and until then, you can find us on
Speaker 1: the Bloomberg Terminal and Bloomberg dot com, as well as
Speaker 1: on iTunes, pocket Cast, and Stitcher. And while you're there,
Speaker 1: please take a minute to rate and review the show
Speaker 1: so more listeners can find us and let us know
Speaker 1: what you thought of the show. You can talk to
Speaker 1: us and follow us on Twitter at Akito seven and
Speaker 1: that Tori stillwell. You can also email our producer at
Speaker 1: a McCabe with to see is at Bloomberg dot net.
Speaker 1: See you next week. M