The European Central Bank (ECB) agreed on Wednesday to withdraw from circulation the 500-euro banknote because of its reputation as the preferred tool for illicit cash transactions.

Following a meeting of the ECB's governing council, the bank said the European Union's largest banknote would be removed from circulation "around the end of 2018," when redesigned 100 and 200-euro notes are to be introduced.

The 500-euro banknote will remain legal tender indefinitely and people in possession of such notes will be able to exchange them for an unlimited period, the bank said.

ECB President Mario Draghi had already signaled the Frankfurt-based bank's intentions in February, when he said there was "a pervasive and increasing conviction in the world of public opinion that high denomination banknotes are used for criminal purposes."

Large denomination banknotes make life easier for people who need to move large quantities of money without passing through official channels, such as members of the Mafia, money launderers and terrorists.

Due to these considerations, 500-pound notes were axed in Britain in 2010 and 1,000-dollar notes were abolished in Canada 10 years earlier. In the United States, the highest denomination banknote is worth only 100 dollars.

Last year, EU police agency Europol issued a report called "Cash is still king" stating that money laundering methods "remain overwhelmingly traditional" and that cash remained "one of the preferred methods to launder the proceeds of crime."

Rarely-used 500-euro notes accounted for more than 30 per cent of the value of all notes in circulation, raising "questions about the purpose for which they are being used and whether this could be linked to criminal activity, which should be further explored," it said.

While it is hard to say how much money is being laundered, "highly conservative estimates based on records received by Europol show that 1.5 billion euros in cash is detected and/or seized by EU member state authorities each year," the report indicated.

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