While a recent shortage of Canada’s $50 banknotes was tied to hoarding, another pattern regarding $100 bills is linked to tax avoidance, according to Bank of Canada research.
Analysts with the central bank found “large numbers of $100 banknotes are issued but never returned for wear and tear like smaller bills,” according to a report by Blacklock’s Reporter, an Ottawa-based online publication covering Canadian government administration.
“I can’t prove it, but if there is currency that is not circulating through financial institutions, that’s a proxy for the underground economy,” Ian Lee, a professor at Carleton University’s Sprott School of Business, told Blacklock’s Reporter.
In a paper entitled “Survival Analysis of Bank Note Circulation,” researchers traced millions of banknotes’ serial numbers over two years and found a large number of notes – mostly the $100 denomination – travel a “large geographical distance” with “no particularly compelling economic reason.” Once they reach an unnamed province, the notes then vanish from circulation, pointing to “a clearly different behaviour pattern in comparison to other denominations,” according to researchers.
The Blacklock’s Reporter article also noted an unusual number of $100 banknotes are never returned to the Bank of Canada’s Toronto or Montréal distribution centres, which redeem worn-out notes.