Against the tide: the Swiss case in favour of high denomination banknotes
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On March 5th, the Swiss National Bank (SNB) unveiled the new CHF1,000. This is the 5th denominationEach individual value in a series of banknotes or coins. More 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 banknoteA banknote (or ‘bill’ as it is often referred to in the US) is a type of negotiable promissory note, issued by a bank or other licensed authority, payable to the bearer on demand. More 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 valueOne of the functions of money or more generally of any asset that can be saved and exchanged at a later time without loss of its purchasing power. See also Precautionary Holdings. More, particularly in times of economic uncertainty and negative interest rates.
Furthermore, the current state of the world is proving that laundered moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More 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:
- Globally, currencyThe money used in a particular country at a particular time, like dollar, yen, euro, etc., consisting of banknotes and coins, that does not require endorsement as a medium of exchange. More 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.
- CashMoney in physical form such as banknotes and coins. More 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 paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More card fraud and associated threats including identity fraud and massive data breaches.
- 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)”.
- Thirdly, cash provides consumers with freedom of choice and supports financial inclusionA process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products. While it is recognised that not all individuals need or want financial services, the goal of financial inclusion is to remove all barriers, both supply side and demand side. Supply side barriers stem from financial institutions themselves. They often indicate poor financial infrastructure, and include lack of ne... More. 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.
- 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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