Friday, September 12, 2003

Banknotes

When the Euro was introduced, the denominations of the coins and the banknotes had to create some sort of compromise between the monetary habits of the various European countries. Really, there were three issues. How small do you make the smallest coins, at what point do you switch from coins to notes, and how large is the largest note?

The ultimate choice made was coins of 1, 2, 5, 10, 20 and 50 cents, and of 1 and 2 euros. Notes are 5, 10, 20, 50, 100, 200 and 500 euros.

The 1 and 2 cent coins are hardly used in France and Germany, but if you go somewhere where prices are lower (in my recent experience Spain) then you see them quite often. They are probably even more common in Portugal and Greece, and when the poorer countries of central Europe are admitted to the euro they will be needed there. So issuing these coins was the right thing to do, even if they are not used.

Prior to the euro, some countries used notes for quite small amounts of money. Most notably, Italy had 1000 lira notes, worth only about 50 American cents. Now, their smallest note is ten times that amount. The Italians have had to get used to high value coins. No big deal. I am sure they did.

However, habits for the largest note varied widely throughout the EU. The largest denomination note that I know of was the 1000 Mark note used in Germany. And the strange thing is that these notes were actually used. In Britain, the highest value note is 50 pounds, but you seldom see them. If you try to pay for things in small stores with the note, then it will often be refused. The largest note commonly used is the 20 pound note. (Similarly, in Australia you very seldom see 100 dollar notes, although 50 dollar notes are seen all the time). However, in Germany you have always seen high value notes being used all the time.

For some reason the Germans like to use cash even for very large transactions. The 500 Euro note was therefore created largely for them. In most countries this note exists, but it is seldom used. Germany though is Germany.

Hence, in Berlin last week I saw somebody walk into Starbucks and buy a cup of coffee. To pay for it, he handed over a 500 euro note. (That's more than 800 Australian dollars). The girl behind the counter looked at it carefully, but accepted it, and gave him about 497 euros change. This was treated as totally unremarkable.

(Traditionally, international organised crime has used suitcases of American 100 dollar bills as its main transactional currency. As the largest euro note is five times as valuable, there was some speculation before the introduction of the euro that suitcases of 500 euro bills might take their place, as these could then be much smaller. I have not done any major deals with international crime figures since the introduction of the euro, so I am not sure if this has happened. I doubt it though. There is just something about greenbacks).

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