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The End of 500€ and 500Rs Banknotes: same Combat ?

By Lionel Allorge (Own work) [ECB decisions ECB/2003/4 and ECB/2003/5, GFDL (http://www.gnu.org/copyleft/fdl.html), CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0) or FAL], via Wikimedia Commons

The fight against tax evasion and laundering requires a long-term strategy and multi faceted approaches.In this context, the high-denomination banknotes are targeted by the authorities across the world. But such a stand-alone measure could simply be a window dressing exercise. The ECB decided a few month ago to phase out the €500 note by the end of 2018. It is a matter of fact that €500 note has long been considered by a majority of experts, including Europol, as the preferred currency for money launderers and other criminals. Yet, some other experts on the black economy stress that the well-structured criminal organizations don't need cash and often operate through bogus companies around the world. And we should also highlight that many citizens who have no intention to avoid paying their fair share of taxes, particularly in Germany and Switzerland - an estimated 79% of all transactions are still made in cash in Germany- want to keep paper currency. For their part, Indian authorities, to everyone's surprise, decided a few weeks ago to phase out 500 and 1000 rupee bills which are to be replaced by new Rs500 and 2000 banknotes. The primary objective of the Indian government is also to combat money laundering in an economy where almost 80% of the labour force work in undeclared employment. It is estimated that cash accounted for 78% of overall consumer payments in India last year (F.Boston Consulting). This strong measure is deemed to be the real beginning of the fight against large-scale tax fraud. But it is far from won in a densely populated and vast country like India. What is certain is that this ill-prepared measure is sowing panic throughout the country. Obviously, whether in Europe or India, the fight against the shadow economy will not just depend on the abolition of paper currency. This combat, first and foremost, will require political will to address corruption and organized crime but also social inequalities.

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