Scrap our R100 and R200 banknotes

Johannesburg - Larger banknotes are more of a problem than a convenience for most South Africans.

While major retailers accept payment in the form of large denominations and use special machines to ascertain that the notes are not fake, this is not the case for small businesses.

Try paying for a taxi ride or a chocolate bar at a tuck shop with a R200 note: you will be regarded with suspicion at best, and a flat-out refusal at worst.

High-value banknotes have been getting bad press lately.

In February, the European Central Bank announced it was investigating the use of the €500 note, which amounts to R7 494 at the current exchange rate.

Soon afterwards, Peter Sands of Harvard University published a report supporting its withdrawal, along with that of big notes such as the $100 bill.

Why are big banknotes falling out of favour?

Forty years ago, in 1976, economist James Henry published a noteworthy (pardon the pun) essay in the Washington Monthly titled Calling in the Big Bills, in which he observed that “only two kinds of activities in the US” required the use of large-denomination currency.

One was tax evasion and the other was organised crime.

Counterfeiting money and banknotes is a serious offence, yet people seem to get away with it in South Africa.

Hence the need for the SA Reserve Bank (Sarb) to follow Henry’s admonishment and stop printing high-denomination, high-value currency bills such as the R100 and R200 banknotes.

Such bills tend to be the preferred payment mechanism of those pursuing illicit activities, thanks to the anonymity they offer in terms of carrying no transaction record, and the relative ease with which they can be transferred.

From the criminals’ perspective, high-denomination currency is more attractive than bank transactions, Bitcoin, gold or diamonds.

The fact that large notes are used far more for illegal activities than legal ones was highlighted by popular culture many years ago.

Fans of Mafia movies and crime thrillers are often given a bird’s-eye view of how cash can be earned, spent and laundered in reel after reel reflecting real-life criminal activities.

Counterfeiting, in the form of drug trafficking, is an obvious example of a criminal activity requiring the movement of huge sums of money.

The increased use of cash partially explains the rise in the number and size of drug-related seizures at ports and cross-border points.

Eliminating such notes could shift the perception that they facilitate criminal activity – and this, in turn, may benefit society because the more these denominations are stigmatised, the less acceptable it will become for otherwise law-abiding citizens to use them.

As a result, people engaged in illicit activities – money launderers, counterfeiters, drug and human traffickers and the like – would face higher costs and greater risk of detection.

The case against high-denomination notes has become a universal cause.

A decade ago, the Financial Action Task Force – an intergovernmental body fighting money laundering – recommended that “countries should give consideration to large-denomination banknotes”.

This was preceded by US economist Kenneth Rogoff advancing the argument, in 1998 and again in 2002, that a large percentage of cash – in particular, high-denomination notes – was being used for illicit purposes.

The results of eliminating these denominations would depend on how the process was implemented.

Sarb could quietly stop printing R100 and R200 notes, and gradually withdraw them from the system.

However, given that policy initiatives come with tough trade-offs, this could be hard to execute.

That said, it isn’t often that you come across a policy proposal that is easy to implement and has a powerful positive effect and a limited downside.

Political leaders should use the opportunity to eliminate high-denomination notes sooner rather than later.

Recent success stories overseas include Canada, which stopped printing its $1 000 note in 2000, and Singapore, whose $10 000 note went out of circulation in 2014.

And, in 2010, the UK estimated 90% of €500 notes were used by criminals and banned its banks from issuing them.

The ability of criminals to distribute and launder money successfully sends the message to South Africans that crime pays – often handsomely – and repercussions are unlikely.

So, they continue plying their nefarious trade and over time, the resolve of law-abiding citizens to do the right thing is eroded.

Cash is woven into the fabric of our lives and our experiences as consumers and businesspeople.

But governments have let cash supplies get out of hand, to the benefit of criminals and tax evaders everywhere.

The time is long overdue for Sarb to get rid of all those R100 and R200 notes.

Kush, AKA Mkululi Nqabeni, is the author of the sci-fi novel The Girl From Space