‘Demonetizing high-value notes unlikely to curb financial crimes’

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December 31, 2025 | 12:00am

MANILA, Philippines — Demonetizing high-denomination banknotes is not an effective cure for financial crimes and systemic corruption and could inflict significant economic harm on legitimate cash users, according to a new discussion paper released by the Bangko Sentral ng Pilipinas (BSP).

The study argued that removing the legal tender status of high-value notes is “a blunt instrument that inflicts severe collateral damage to legitimate, cash-dependent populations,” while offering limited benefits in deterring corrupt actors who can easily shift to alternative stores of value such as real estate, precious metals, shell companies, gold and cryptocurrencies.

The paper emphasized that “the economic costs of removing the legal tender status of high-value denominations far outweigh the limited benefits of inconveniencing corrupt actors,” making it an inefficient policy choice given the availability of more targeted reforms.

Authored by BSP officials Eloisa Glindro, Mamerto Tangonan and Rodalee Ofiaza, the paper examined international demonetization episodes and Philippine data to assess whether withdrawing large-denomination banknotes could meaningfully address corruption and money laundering.

The study noted that demonetization has often been framed as a politically attractive anti-corruption measure, but with “uncertain empirical evidence of effectiveness.” It added that while some jurisdictions managed smooth transitions, others imposed “a heavy burden on legitimate cash users,” particularly in economies with weak institutions and high cash dependence.

Drawing from global experience, the paper cited India’s 2016 demonetization as a cautionary example. Despite withdrawing notes that accounted for 86 percent of the total value of banknotes in circulation, the policy failed to eliminate black money or curb corruption.

“Demonetization temporarily affected the stock but did not prevent the flow of undeclared income,” the authors said, noting that 99 percent of demonetized currency was eventually returned to the banking system through various laundering methods.

In contrast, demonetization efforts in advanced economies such as Canada, Australia and the European Union succeeded mainly because they were gradual, well-communicated and anchored on technical or security considerations rather than anti-corruption objectives.

Australia’s transition from paper to polymer banknotes, for instance, was described as “proactive and forward-looking,” resulting in stronger security and long-term cost savings without disrupting economic activity.

For the Philippines, the paper highlighted the continued importance of high-denomination banknotes in everyday economic activity. As of end-August, the P1,000 note accounted for 83 percent of the total value of banknotes in circulation and 41 percent in volume.

Combined with the P500 note, the two highest denominations accounted for 93 percent of the total value and 51 percent of the total volume.

Banks’ withdrawals of P1,000 notes from the BSP peaked at P1.3 trillion during the COVID-19 pandemic in 2020, underscoring the denomination’s critical role not only in high-value transactions but also in routine business expenses such as petty cash, fuel, food and allowances.

The BSP study also noted that the incidence of counterfeiting in the Philippines remains low. In the first semester of 2025, documented counterfeit banknotes declined by 18.9 percent year-on-year to 5.8 parts per million, reinforcing the peso’s status as “a reliable and secure payment instrument.”

Instead of demonetization, the authors stressed that institutional reforms are more effective in combating financial crimes. These include “lifting of bank secrecy law, strengthening technology-aided financial intelligence, enforcing asset declaration requirements, implementing cash transaction regulations and digitizing government services,” particularly in disbursements, collections and procurement systems.

The paper concluded that since demonetization represents “a bold and drastic monetary policy shock,” any consideration of such a measure must be grounded in a careful assessment of socio-cultural conditions, institutional strength and unintended consequences.

Without these, the study warned, demonetization risks repeating costly failures seen in other jurisdictions while leaving the root causes of corruption unaddressed.