When the Bank of Japan puts new bank notes into circulation next month, it could draw out cash hoarded away in the country’s underground economy and into investments like gold and real estate.

The central bank’s main aim in issuing the new notes is to make life harder for counterfeiters.

But it may also encourage those holding large amounts of cash to put it into other investments because keeping large amounts of old notes will, over time, attract unwanted attention.

“It will become increasingly awkward to use the old notes as the new ones become more common, providing a catalyst for the spillover of money from the underground economy into the real economy,” says economist Takehiro Sato of Morgan Stanley.

The underground economy refers to transactions that aren’t reported to tax authorities and covers money laundering, tax evasion and the illicit drug trade. Those involved in such deals prefer to use cash, which doesn’t leave a paper trail that could tip off tax collectors.

Measuring the volume of such activity is difficult because of its informal, clandestine nature, and estimates vary.

Takashi Kadokura, senior economist at Dai-Ichi Life Research Institute who has written books on Japan’s underground economy, puts the value of hoarded cash in the April-June quarter at 5 trillion yen.

Morgan Stanley’s Sato says it was at least 17 trillion yen.

Preparations to transfer such funds out of the old bank notes could push money into gold, Swiss bank accounts or offshore tax havens in places like Hong Kong, which all offer some anonymity, Kadokura said.

Some funds could also flow into Japanese real estate, stocks and government bonds. But any boost would probably be modest, because such investments require disclosure of personal information.

Experts note that the introduction of euro bank notes and coins in 2002 unleashed money hidden across Europe.

Some say the same could happen here, giving the BOJ an edge in its hard-fought battle against deflation.

Japan has been struggling with deflation, a continuous drop in prices that brings down wages and spending, and has forced the BOJ to keep interest rates at zero since March 2001.

Mitsuru Saito, chief economist at UFJ Tsubasa Securities, expects the underground economy to hold its cash for a while. But when it comes out of hiding, “it could be taken as a plus for the Japanese economy” because bank notes otherwise collecting dust would be put to use.

The change in design of the country’s notes is the first since 1984. The new ones debut Nov. 1 and will have features like holograms, ink that can only be viewed from certain angles and improved watermarks.

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