Search This Blog

Image and video hosting by TinyPic

Thursday, November 29, 2012

WSJ: How Gangsters Are Saving Euro Zone


Gangsters, drug dealers and money launderers appear to be playing their part in helping shore up the financial stability of the euro zone.  That’s thanks to their demand, according to European authorities, for high-denomination euro bank notes, in particular the €200 and €500 bills. The European Central Bank issues these notes for a hefty profit that is welcome at a time when its response to the financial crisis has called its financial strength into question.
The high-value bills are increasingly “making the euro the currency of choice for underground and black economies, and for all those who value anonymity in their financial transactions and investments,” wrote Willem Buiter, chief economist at Citigroup, in a recent research report. The business of issuing euro notes, produced at almost zero cost, is “wildly profitable” for the ECB, Mr. Buiter wrote.
When euro notes and coins went into circulation in January 2002, the value of €500 notes outstanding was €30.8 billion ($40 billion), according to the ECB.
Today some €285 billion worth of euro notes are in existence, an annual growth rate of 32%. By value, 35% of euro notes in circulation are in the highest denomination, the €500 bill that few people ever see.
In 1998, then-U.S. Treasury official Gary Gensler worried publicly about the competition to the $100 bill, the biggest U.S. bank note, posed by the big euro notes and their likely use by criminals. He pointed out that $1 million in $100 bills weighs 22 pounds; in hypothetical $500 bills, it would weigh just 4.4 pounds.
Police forces have found the big euro notes in cereal boxes, tires and in hidden compartments in trucks, says Soren Pedersen, spokesman for Europol, the European police agency based in The Hague. “Needless to say, this cash is often linked to the illegal drugs trade, which explains the similarity in methods of concealment that are used.”
A spokeswoman for the ECB declined to comment on who uses the bills.
The ECB and its member governments are beneficiaries of the demand.
The profit a central bank gains from issuing currency—as well as from other privileges of a central bank, such as being able to demand no-cost or low-cost deposits from banks—is known as seigniorage. It normally accrues to national treasuries once the central banks account for their own costs.
The ECB’s gains from seigniorage are becoming increasingly important this year.
The ECB has taken hundreds of billions of euros of assets of unknown quality on to its balance sheet as it has reacted to the global financial crisis.
It holds more than €600 billion in collateral from banks to which it has made loans, and more than €400 billion in securities it holds outright, including government bonds.
Overall, the ECB’s balance sheet has grown to almost €2 trillion. It has a capital base of €78 billion. That creates leverage that makes it look like a “hedge fund on steroids,” Mr. Buiter wrote. It wouldn’t need to lose much on these assets to wipe out its thin cushion of capital.
That’s where seigniorage comes in.
In recent years, the profits on its issue of new paper currency have been running at €50 billion. In 2008, the year of the Lehman Brothers crisis, it was €80 billion.
Even with conservative assumptions about future growth of currency in circulation—at, say, 4% a year, which is in line with the ECB’s 2% inflation target plus a margin for economic growth—Mr. Buiter estimates future seigniorage profits for the central bank between €2 trillion and €6.9 trillion.
Thanks to seigniorage, he says, the ECB is “super solvent.”
An ECB spokeswoman says there’s no plan to withdraw high-value notes, national equivalents of which were used in six member states before the euro was launched. They will be retained when a redesigned series is issued in coming years.
Replacing them with small denominations would increase production and processing costs, she says.

No comments:

Post a Comment


Category

1915 Armenian Genocide 21st-century Christian martyrs‎ africa al assad Al Qaeda albania anti-Morsi protests Apostles Arab Christian Arab-Orthodox Archimandrite Tikhon Shevkunov army Asia Australia bank BBC Belarusian Orthodox Church Bethlehem bible Bible movies bible translations bulgaria Bulgarian Orthodox Church Byzantine byzantine music C.I.A. Cairo China Christian Armenians christianity christians christmas Christmas Traditions Christmas tree church Conspiracy Constantinople coptic church copts cyprus daily news Documentary Easter economy Ecumenical Patriarch Ecumenical Patriarch Bartholomew I Ecumenical Patriarchate of Constantinople egypt egypt pope elder Elder Ephraim of Vatopaidi elder joseph of vatopaidi elder Paisios Elder Porphyrios english subtitles Epiphany europe food Fr Seraphim Rose france FREE books FREE Greetings Cards fyrmacedonia Georgian Orthodox Church germany greece greek greek food greek music Greek Orthodox Church Greek Orthodox Easter greek orthodoxy health and medicine Holy Fathers Holy Scripture Holy Tradition icon Internet Interview iran islam islamist israel Italy jerusalem Jesus Christ jews jihad killed libya mafia Middle East Miraculous Icon monastery money mother of god mount athos Mount Sinai Movie Trailers music muslim muslims news orthodox church Orthodox Church in America pakistan Palestine patristic tradition photo photos picture politics pope Prophecy protests quotes recipes religion romania romanian orthodox church Russia Russian Orthodox Church saint Saints science Shroud of Turin Son of God spy St Nicholas of Myra syria The Mount Athos Food Evolution theotokos travel turkey tv UK Ukraine Ukrainian Orthodox Church usa Vatican vatopaidi video war Watch FREE full movie world
Related Posts Plugin for WordPress, Blogger...