“The people of France have regarded it as a badge of honour since time immemorial to find imaginative ways to avoid paying taxes,” says a banking analyst from BNP Paribas.
It is standard practice, for example, for people to pay out hundreds of thousands of francs in cash when they’re buying a house simply in order to avoid stamp duty. This phenomenon, officials at the Banque de France have come to realize, is what lies behind the steady decrease in the amount of French francs in circulation. But now that the national currency is due to be abolished, all the cash that has been stuffed under mattresses is being taken out and spent.
Since the beginning of 2001, Ffr25 billion ($3.25 billion) has been returned to the Banque de France from commercial banks whose deposits have increased as a result of increased flows from the commercial sector. The number of francs in circulation as of June 22, according to the Central Bank, amounted to Ffr272 billion, compared to Ffr291 billion on the same date in 2000. This is a fall of 6.5%, a remarkable figure considering that a country’s money supply normally increases by 3% a year.
And yet the authorities don’t seem to be alarmed. “We are surprised that the amount of hidden cash being spent is so high,” says Valérie Ohannessian, director of external relations at the Association Française des Banques. “But we are truly pleased about it because for us the priority is to have an easy transition to the euro.” Any francs that have been kept under the mattress or buried in the garden until now, is money that will not have to be spent in the crunch period just before the end of the year, or in the short period of double circulation.
Double circulation is the strategy countries are adopting to introduce the euro. For a limited time, both the national currency and the euro will be accepted. Each country has set a different length period and at six weeks, France’s is one of the shortest. On February 17 2002 French citizens will be able to use francs for the final time.
So, because the French are spending their money now, the banking association and the central bank are optimistic that there will not be a rush just before E-day. Officials are less concerned about trying to catch petty tax evaders than with enabling an easy progression from franc to euro. After all, as one official confesses: “Who does not try to avoid tax? We cannot criticize them, we are all the same.”
But one man who welcomes a rush to dispose of stashes of national currency is Willy Bruggeman, deputy director of Europol in the Hague. For Bruggeman and his colleagues, the advent of a new currency is a one-off chance to track down organized criminals. As he says: “The changeover of currency is a great opportunity for us in the battle against money laundering.” Controls are in place in every bank and bureau de change to monitor transactions and report unusually large deposits or currency exchanges. Bruggeman plans to step up surveillance as E-day draws closer.
After double-circulation has ended, the rules in France allow for amounts of less than Ffr10,000 to be exchanged until June 30 2002 with seemingly no questions asked. But the apparent lack of checks is illusory – though the aim is to encourage holders of legitimate stashed francs to come forward, Europol will continue to be on the look out for suspect money.
“The bank agencies will be briefed to be vigilant, to watch out for people coming in to exchange money from different regions, from out of the country, and just people they don’t know,” explains Bruggeman. “The launderers think they can hide behind the great quantity of exchange activity that will be going on, but they cannot.”
Bruggeman expects that, as activity increases leading up to the changeover, the launderers will be more prolific too. “I think we will see a number of arrests as a result of money changing in countries in the eurozone, and we may see a bust of a major organized crime operation.”
Meanwhile, the French are still spending at an astonishing rate. Analysts at UBS Warburg estimate that e1.1 billion is being liberated each day in the eurozone.
But what fate awaits the new currency? Some observers are predicting that, once the euro has been fully adopted, the existence of a single currency will enable black-market trading and organized crime to take place across borders more easily. This could even, perversely, help to strengthen the currency. “There will be a substantial shift from organized crime holdings of dollars to the euro once it becomes a fully-fledged retail currency,” agrees Bruggeman. “This will be good for the euro, and also good for Europol.”
