The author is a former Treasury secretary and director of the National Economic Council in the White House. He wrote this for the Washington Post.
Harvard's Mossavar Rahmani Center for Business and Government has just issued an important paper that makes a compelling case for countries to stop issuing high-denomination currency such as the 500-euro note and $100 bill — or even withdrawing them from circulation.
When the euro was being designed in the late 1990s, I argued with my European Group of 7 colleagues, telling them that issuing a 500-euro note was highly irresponsible and mostly would be a boon to corruption and crime.
Because much of the crime and corruption would happen outside European borders, I suggested that — to paraphrase former Treasury Secretary John Connally — it was their currency but would be everyone's problem. And I made clear that in the context of an international agreement, the U.S. would offer to reconsider its policy regarding the $100 bill. But because the Germans were committed to having a high-denomination note, the issue was never seriously debated.
The fact that in certain circles the 500-euro note is known as the "Bin Laden" confirms the arguments against it.
The Harvard report's analysis is convincing on the linkage between high-denomination notes and crime. It is surely right that illicit activities are facilitated when $1 million weighs just 2.2 pounds (as it does in 500-euro notes) rather than more than 50 pounds (as it would in $20 bills).
And technology is obviating whatever need there might have ever been for high-denomination notes in legal commerce.
What should happen next? I'd guess the idea of removing existing notes is a step too far. But a moratorium on printing new high-denomination notes would make the world a better place.
In terms of unilateral steps, the most important actor by far is the European Union. The 500-euro bill is almost six times as valuable as the $100 bill. Some actors in Europe, notably the European Commission, have shown sympathy for the idea. So has European Central Bank chief Mario Draghi.
If Europe moved, pressure could probably be brought to bear on others, notably Switzerland.
Resistance within the European Central Bank is coming out of Luxembourg, with its long and unsavory tradition of giving comfort to tax evaders, money launderers and other proponents of bank secrecy — and where 20 times as much cash is printed, relative to gross domestic product, compared with other European countries.
These are difficult times in Europe — the refugee crisis, economic weakness, security issues, the rise of populist movements — and there are real limits on what it can do to address global problems.
But here is a step that would represent a global contribution with only the tiniest impact on legitimate commerce or on government budgets.
It might not be a free lunch, but it would be a very cheap lunch.
Even better than unilateral measures in Europe would be a global agreement to stop issuing notes worth more than, say, $50 or $100. Such an agreement would be as significant as anything else the G7 or G20 has done in years. China, which is hosting the next G20 summit in September, has made attacking corruption a main goal.
More generally, at a time when such a demonstration is very much needed, a global agreement to stop issuing high-denomination notes would also show that the global financial groupings can stand up against "big money" and stand up for the interests of ordinary citizens.