Reserve Bank governor explains Australia’s obsession with banknotes

CANBERRA, Oct 2, 2019, News.com.au. Reserve Bank governor Philip Lowe has revealed why the RBA decided to cut interest rates to a record, new low on Tuesday. Speaking at a Reserve Bank board dinner in Melbourne, Mr Lowe said the decision to lower the cash rate to 0.75 per cent — the lowest it has ever been — was driven predominantly by slowing global growth, reported the News.com.au.

“Globally, the main issue at the moment is the uncertainty generated by a series of geopolitical events, particularly the US–China disputes over trade and technology,” he said.

That uncertainty is causing many firms around the world to delay their investments, he explained, and is increasing the global appetite to save.

“Like many things in economics it comes down to supply and demand,” he said.

“The underlying explanation for low interest rates globally is that the global appetite to save is high, relative to the global appetite to invest.”

But Mr Lowe also used the speech to give some insight into a completely different matter — the curiosities of Australia’s cash economy.

Next week the RBA will release its new and improved $20 note, complete with updated security features. But with more people moving towards electronic and contactless payments, Mr Lowe said he was often asked why the bank bothered.

“It might surprise you to know that the demand for banknotes in Australia is still strong,” he said. In fact according to Mr Lowe, the number of banknotes in Australia is close to the highest it’s been in 50 years, if you consider the current size of the economy.

“All up, there are 14 $100 notes on issue for every Australian, 30 $50s, and seven $20s. That makes for around $3000 worth of banknotes on issue for every Australian,” he said.

So where is all that cash hiding? “I, for one, don’t have anywhere near that amount,” Mr Lowe said.

According to a report released by the RBA in December last year, there’s approximately $76 billion worth of banknotes currently circulating in Australia.

About a quarter of those are used to make legitimate day-to-day transactions within Australia, while the rest is predominantly stored in safes, under beds and at the back of cupboards, both in Australia overseas, Mr Lowe said.

“We estimate that a further 4 to 8 per cent are used in the shadow economy, either to hide transactions from the Australian Taxation Office or to undertake illegal transactions,” he added.

“Finally, it appears that between 5 and 10 per cent of banknotes are either simply lost, maybe at the beach, or destroyed, perhaps in a natural disaster.”

Tags: Australia