The €500 note is to be removed from circulation because of concerns that it aided criminal activity.
But the European Central Bank said the existing notes will continue to be legal tender and will retain their value. The ECB was “taking into account concerns that this banknote could facilitate illicit activities,” and said that production of the notes would end in 2018.
The €500 note is currently the highest Euro denomination, ahead of the €200 and €100 notes. The move was welcomed by France, where there had been concern that the high-value note was being used by terrorists to covertly move money.
In December 2015, there were approximately 613,559,542 €500 banknotes in circulation around the Eurozone.
€500 note circulation increased dramatically after the 2008 financial crisis.
The Euro is not the only currency to have faced criminal issues with its largest monetary denominations. The Harvard Kennedy School published a report recommending that large economies abandon large notes – primarily the $100 U.S. Dollar note and the £50 British Pound note. Hong Kong also faces challenges with its highest denomination the $1000 Hong Kong Dollar note, as having a reputation for being used by criminals as well as being often counterfeited.
Many individuals attempting to use such high denomination notes find them difficult to spend, as retailers are unwilling to give such large amounts of change. The move could prove useful to tourists who are sometimes issued high-denomination notes at currency exchanges.
Deposit rates are near zero in the Eurozone, making more people want to hold onto their cash rather invest. There is some hope that withdrawing the €500 note will encourage people to put more of their cash back into the economy.
The ECB issued reassurances that other notes would be produced to replace the value, saying “The Eurosystem, which comprises the ECB and the euro area national central banks, will take steps to ensure that the remaining denominations are available in sufficient quantities.”