Thursday, May 2, 2013

Of Wads Big and Small

It takes a lot of these...

to get one of these.

Odd and often amusing consequences result when a monetary system wherein the highest bill denomination is worth only US$16 is conflated with a citizenry that prefers cash payments above all others (e.g. credit cards, checks). That country of course is China. As discussed in this New York Times article, China has not put in circulation any bill denominated higher than RMB 100 in the past thirty years, even though the economy has grown fifty-fold during that period. The red note bearing Mao's Mona Lisa smile is the lowest top-value bill issued by any advanced country.

It seems the growth of China’s economy has not been mirrored by the trust by all of its citizens in the country’s banking system and government. Thus, cash still reigns king in many transactions. Jewelry, cars, yacht, and even houses are regularly paid for in duffel bags or even trunk loads of bright red notes. Monthly wages are still often paid with envelopes full of the stuff. Of course, a thick wad is also a efficient means of transacting that most useful of wink-wink dealings – bribes. Discouraging bribery is a motivation speculated on by the NYT article as to why a larger denomination bill has not been released. After all, a large bulge in an official’s pants may be more than simply embarrassing. It could be an indication of more nefarious goings on.
China’s situation is in sharp contrast to Singapore’s. The city state has the world’s highest-value note in active circulation – the S$10000, currently worth US$7,800. The bill is most often used for interbank transactions, but it is also occasionally spotted being passed around in Singapore's casinos and high-end luxury shops. The note is a symbol of a banking system that is modern, fluid and open. Perhaps too much so. It's not difficult to speculate how a note this valuable might facilitate cross-border money laundering and shadow banking flows. And do away with the need to lug around heavy suitcases or explain bulging pockets. 

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