Canada's Underground Economy Brings In the Big Bills

THE $100 bill has become the currency of choice in Canada's underground economy.

At a cafe south of Montreal, sheaves of $100s and $50s pass hands every Friday night between tradesmen in the home renovation business. It is an area where even the government admits at least half of the construction work is done under the table.

But while the carpenters get paid, the federal government receives neither income tax nor the 7 percent Goods and Services Tax. The provincial government also loses much of its 8 percent sales tax.

The Canadian Federation of Independent Business, and economists such as Reuven Brenner at McGill University in Montreal, estimate that the underground economy is 15 percent of the entire economy, or more than $100 billion (Canadian; US$75 billion) a year.

The growth of the underground economy has been matched by an increase in cash circulating in the Canadian economy. Large bills are the fastest growing denominations.

``There were 94.5 million $100 bills in circulation at the end of last year, compared to 72.7 million 100s at the end of 1989,'' says Gerrit Bilkes, an official with the Bank of Canada in Ottawa, the government agency that oversees the printing and distribution of bills.

Once put into circulation, the $100 bill stays out there longer, Mr. Bilkes says. While $20 bills are returned to the bank three or four times a year, the $100 bill comes back only once every two years.

The most popular bill in Canada is the $20 note; more than 350 million of them are in circulation. One reason is that bank teller machines use the bills. Toronto Dominion Bank is experimenting with machines that spit out only $50 bills.

``We put them in places where there is a high demand for cash such as discount warehouses, which accept only cash,'' says Beverly McLean of Toronto Dominion.

Economists say the reason for the need for more cash is simple.

``The underground economy is alive and well and that's the main reason why the amount of currency in circulation is high,'' says Aron Gampel, vice president and economist at the Bank of Nova Scotia in Toronto. ``When the top income tax rate in Canada is higher than 50 percent, you see a lot of people being paid under the table.''

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