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Against the tide: the Swiss case in favour of high denomination banknotes

Categories : Cash is also a store of value
March 5, 2019
Published in : high denomination, Store of value, Switzerland
Viktoria Dijakovic

On March 5th, the Swiss National Bank (SNB) unveiled the new CHF1,000. This is the 5th denomination out of 6 to be issued of the new series and is one of the world’s largest banknotes in terms of value. It will be officially issued on March 13th, 2019. Equal to approximately the same amount in US dollars, the CHF1,000 is still extremely popular in the small Alpine nation, recording significant growth as interest rates remain stubbornly low. The missing banknote to complete the series is the CHF 100.

Despite the ongoing arguments for or against high denomination banknotes, particularly from the less-cash or cashless fans, the Swiss case, and others, show that high denomination banknotes are particularly appreciated as a store of value, particularly in times of economic uncertainty and negative interest rates.

Furthermore, the current state of the world is proving that laundered money has long ago started to travel more swiftly and efficiently through more virtual – and sometimes perfectly legal – networks causing greater damage than the briefcase-full of high denomination notes is still believed to do.

Here are some key takeaways from the report “Against the tide: the Swiss case in favour of high denomination banknotes”, accessible here below:

  1. Globally, currency demand has been increasing, mainly driven by large denominations in times of economic and political uncertainty, combined with low or negative interest rates. Banknotes play an important role as a store of value both domestically and internationally.
  2. Cash is an increasingly secure form of currency holding from the point of view of the consumer. Security consists, above all, in providing an environment in which consumers feel comfortable to transact. There is evidence that consumers are increasingly apprehensive of payment card fraud and associated threats including identity fraud and massive data breaches.
  3. Online fraud far outweighs in value malfeasance involving hard currency. Even when it comes to terrorism, the EU has stated that “limiting the use of cash would not prevent terrorism financing” and has therefore announced, on June 12th 2018, that it will not impose any cash restrictions. An argument that is supported by Nikos Passas who wrote for the Journal of Financial Crime that “countries with high denomination notes are low on crime and organized crime (e.g. Japan, Singapore, Switzerland or UAE), while crimes with very low denominations are high on crime (e.g. Brazil, Nigeria, South Africa or Venezuela)”.
  4. Thirdly, cash provides consumers with freedom of choice and supports financial inclusion. Following the financial crisis, use of cash went up as uncertainty around banks caused people to go ‘back to basics’. There are around 6 to 700 billion banknotes in circulation, making this form of currency perhaps the most available personal item on the planet. 44% of Swiss people say they have previously held at CHF1,000 note and have used it to transact, so this is a ‘mass market’ product and one used for instance to pay utility bills which in Switzerland is largely still done via a post office submission in person.
  5. Lastly, the Swiss Franc is effectively a reserve currency in times of economic uncertainty, so the Swiss National Bank is supporting the ability of other nationals to hold cash as part of their risk management policies.

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