50,000 won bills continue disappearing

By Yoon Ja-young

Only half of 50,000 won notes issued by the Bank of Korea are returning to the central bank, amid concern that the large denomination bills are contributing to the underground economy. The central bank hopes that the anti-graft law which will take effect in September will make Korean society more transparent, forcing more 50,000 won notes to surge from the underground.

According to the central bank, 11.2 trillion won worth of 50,000 won notes were issued in the first half of this year. Of them, only 5.7 trillion won have been collected by the bank, recording a 50.7 percent rate of return.

The rate of return has been rising steadily during the past few years, from 25.8 percent in 2014 to 40.1 percent last year. However, it is still low compared with the return rate of other bills, which hovers above 90 percent.

The central bank has been increasing the supply of 50,000 won notes to meet demand, but this has only added to concerns that the 50,000 won notes are entering the underground economy. The balance of the 50,000 won bills issued so far stood at 69.8 trillion won as of June, which is 78.4 percent of the total bills issued.

“Korea’s underground economy is estimated to make up around 30 percent of its gross domestic product (GDP), which is considerably high,” said Kang Kyeong-hoon, professor at Dongguk University in Seoul. “In the case of 50,000 won notes which started circulation in 2009, they are very likely to be used for illicit activities, such as concealing large cash transactions, as they are easy to trade and keep,” he added.

The tax agency and the police also often discover stashes of 50,000 won notes hidden by tax evaders or criminals. For instance, the National Tax Service reported that its agents in Daegu found a stash 50,000 won bills and $100 notes, worth 600 million won in total, when they raided the luxury country residence of a tax evader.

Regarding the concerns about 50,000 won bills entering the underground economy, the Bank of Korea Governor Lee Ju-yeol said at the parliamentary audit in 2014 that the bank is aware of the problem. “We will make efforts to tackle the issue as it seems to need an effective diagnosis and solution,” the governor said.

The central bank expects that the anti-graft law, which sets price ceilings on meals or gifts that public officials, journalists and private school teachers can receive, will help decrease the inflow of 50,000 won notes to the underground economy by decreasing corruption and making the society more transparent.

It also plans to make a “cashless society” by 2020, on the expectation that a cashless society will partly solve the problem of the underground economy. Some experts also point out that going cashless can help monetary policy. Currently, some central banks have adopted negative interest rates to stimulate their economies, but this isn’t working as effectively as the government expects as people continue holding cash in their safes because of this. When they hold electronic cash instead of real cash, they would have to spend it to avoid losses.