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Why 'Bin Laden' Euro Notes Should Be Abolished

Jeffrey Coolidge | Iconica | Jeffrey Coolidge

Demand for 500 euro bills as a store of value has started to decline, according to a currency strategist at one of the world's largest banks, who told CNBC that the note is used extensively for criminal activity and should be abolished, with the proceeds used to recapitalize European banks.

"Since the euro zone crisis has started we have seen a decline in demand for the bill which suggest a decline in the demand for the euro as a store of value," Athanasios Vamvakidis, forex strategist at Bank of America Merrill Lynch told CNBC.

The notes are known jokingly as "Bin Ladens" in Spain due to the fact that they can't easily be found in circulation because they are used to stash money from the taxman.

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Vamvakidis said the 500 euro bill, the highest euro denomination available, represented 33 percent of the total value of euros in circulation, compared to 13.7 percent when it was first introduced.

"What we're proposing is to abolish the bill. Now if you do this, you will weaken the euro - given that one third of the euro are in this bill - this is good for the economy."

Evidence suggests that a lot of the bills are used used to hide income from illegal sources, criminal activities or tax evasion, according to Vamvakidis.

In 2010, bank wholesalers in the U.K. stopped supplying the note after a request from the Serious Organised Crime Agency (SOCA). Ninety percent of U.K. demand came from criminals, according to evidence from SOCA. People are still allowed to bring it into the country but it is no longer available over the counter.

Abolishing the note can be done in a way that can tax illegal activity, Vamvakidis said. More large deposits would also help recapitalize struggling euro zone banks and Vamvakidis said that all bills that are not deposited within a month, or are not justified by legal income sources, would then become European Central Bank (ECB) profit.

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"The way to do that is to give a short period of time for people to deposit this bill into a bank and exchange them and after this to completely abolish the bill," he said.

"If you do that and you give a short enough time. You don't give enough time for criminals to clean up this money...this is the equivalent to a 100 percent tax on 500 (euro) bills that store illegal income. You can use this money to recapitalize the banks in the euro zone, to increase capital for the ESM (European Stability Mechanism)."

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The value of 500 euro bills amounted to 290 billion euros in February 2013, according to research by Bank of America Merrill Lynch, and it believes that revenue raised in such a scheme could be sizable.

"We have seen nothing to suggest that the ECB and the euro zone authorities have ever considered such a scheme, but we believe that it would be a win-win idea," Vamvakidis said in a research note.

By CNBC.com's Matt Clinch

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