Low return rate of 50,000 won bills raises concerns

The central bank’s collection rate of 50,000 won banknotes dropped to 19.9 percent in the second quarter of this year — a record low for the past five years, raising concerns about an excess of the banknotes on the underground economy. / Korea Times file

By Chung Ah-young

The central bank’s collection rate of 50,000 won banknotes dropped to 19.9 percent in the second quarter of this year ― a record low over five years ― data from the Bank of Korea (BOK) showed Monday.

According to the BOK, it issued some 4.9 trillion won worth of 50,000 won bills during the July-September period, but retrieved only 982 billion won.

This rate marks the lowest level since the second and third quarters in 2009 when the highest denomination banknote was first released and only 0.1 percent was returned.

The BOK explained that the latest low collection rate resulted from an additional supply of 50,000 won bills ahead of Chuseok in the third quarter.

The bank also assumed that due to the prolonged low-interest rate, more people want to hold onto cash.

However, analysts point out that the falling return rate appears to be connected to the underground economy. This issue was discussed during a National Assembly audit on Oct. 7.

Rep. Park Duk-hyum, a lawmaker of the ruling Saenuri Party, pointed out that some individuals and companies stack up large sums of 50,000 won bills for the purpose of secret funds and tax evasion, calling for the central bank to find a solution to the problem.

Rep. Hong Jong-haak, a lawmaker of the New Politics Alliance for Democracy, proposed that the bank mark issue dates on bills to control the currency flow. BOK Governor Lee Ju-yeol responded that he will consider this course of action.

The BOK plans to announce survey results for currency demand and use within this year as controversy over the underground economy has grown.

Recently, the redeeming rate has been falling sharply, raising concerns over the growth of the black market since the Park Geun-hye government vowed to clamp down on the underground economy.

The collection rate climbed from 7.3 percent in 2009 to 41.4 percent in 2010, 59.7 percent in 2011 and 61.7 percent in 2012, before dropping to 48.6 percent in 2013 and 24.4 percent this year.

Amid the falling return rate of 50,000 won bills, the amount of the high denominated gift vouchers issued by department stores has doubled over the past year, aggravating concerns over the underground economy.

According to data from the Korea Minting, Security Printing & ID Card Operating Corp., the number of 300,000 won and 500,000 won gift vouchers issued last year reached 4.7 million, a 110.6 percent increase from a year ago with 2.2 million.

The number of 500,000-won gift certificates printed in 2009 stood at 420,000 and exploded to 3.6 million last year, a nine-fold increase over four years. In comparison, the issuance of 50,000 won gift vouchers saw a two-fold increase, with the total 100,000 won vouchers doubling also.

Park Jong-sang, a researcher with the Korea Institute of Finance, said the collection rate for 50,000 won bills is in decline as they are possibly flowing into the underground economy.

“Some consumers buy vouchers with credit cards and then resell them in bulk on the market to secure cash. The high denomination vouchers worth 500,000 won can be used for illegal transactions,” he said.

“The low collection rate of 50,000 won bills might mean vouchers with high denominations can be stacked for slush funds, bribes and embezzlement for shady financial transactions,” he said.

Also, Park said the amount of vouchers is not included in the flow of money calculated by the BOK, even though they are an equivalent to cash, as he urged for more controls on gift voucher circulation.