Larry Summers calls for G-20 pact on banknote limit as low as US$50

Mr Summers wants a global agreement to stop issuing notes "worth more than say US$50 or US$100".
Mr Summers wants a global agreement to stop issuing notes "worth more than say US$50 or US$100". PHOTO: BLOOMBERG

WASHINGTON (BLOOMBERG) - Former U.S. Treasury Secretary Lawrence Summers urged countries around the world to agree to stop issuing high-denomination banknotes, adding his voice to intensifying criticism of a practice alleged by police to abet crime and corruption.

Summers's call coincides with a review by the European Central Bank of its 500-euro (S$782.3) note, whose future now looks increasingly uncertain. President Mario Draghi repeated this week that the institution was considering withdrawing the euro area's most valuable bill to avoid aiding criminals.

"Even better than unilateral measures in Europe would be a global agreement to stop issuing notes worth more than say US$50 or US$100," Mr Summers said on his blog on Tuesday. "Such an agreement would be as significant as anything else the G-7 or G-20 has done in years."

The 500-euro note has been in circulation since the paper currency went live in 2002. British banks and money-exchange services stopped distributing the bills in 2010 after a report showed that 90 per cent of demand for them came from criminals. ECB Executive Board member Yves Mersch said earlier this month that his institution still wanted to see "substantiated evidence" that the notes facilitate illegal activity.

Former Bank of England policy maker Charles Goodhart, an authority on money supply, told a conference last year that the central banks in Europe were "absolutely shameless" in issuing high-denomination notes. Peter Sands, previously the chief executive officer of Standard Chartered Plc, argued in a paper this month that such bills should be eliminated and also called for a G-20 accord. The next meeting of G-20 finance ministers is in Shanghai on Feb. 26-27.

Sands's report was released by the Mossavar-Rahmani Center for Business and Government at Harvard University's Kennedy School, where he is a senior fellow and Summers is director.

For now, "I'd guess the idea of removing existing notes is a step too far," Mr Summers wrote. "But a moratorium on printing new high-denomination notes would make the world a better place."