UBS is the latest to call for Australia to scrap large denomination bank notes, citing that it would help eliminate the black economy. From Bloomberg:
“Removing large denomination notes in Australia would be good for the economy and good for the banks,” UBS analysts led by Jonathan Mott said in a note to clients on Monday. Benefits would include reduced crime and welfare fraud, increased tax revenue and a “spike” in bank deposits, he said…
In Australia, 92 percent of all currency by value is in A$50 ($38) and A$100 notes, the larger of which is “rarely seen,” according to the UBS report. Removing bigger denominations would boost digital payments in a country where the use of cash payments is continuing to fall, the analysts wrote…
The program would also be positive for banks. If all the A$100 notes were deposited into accounts at the lenders, household deposits would rise by about 4 percent, the UBS analysts said. That would likely be enough to fill the big banks’ regulatory-mandated net stable funding ratios and reduce reliance on offshore funding, they said.
Fairfax’s Peter Martin has been calling for the elimination of large denomination bank notes for nearly a decade. As Martin wrote in September:
…it’s the use of $100 notes – the kind most of us hardly ever see, and the kind bank transfers should have rendered redundant – that is exploding.
Twenty years ago there were only five $100 notes per person in circulation. They were less common than $20 notes, which was appropriate given they were far less used. A decade later in 2005 after the introduction of the goods and services tax (the one we were told would kill the cash economy) we had seven per person, and now we have 12. A graph included in the latest Reserve Bank annual report shows the number of $100 notes in circulation climbing faster than any other denomination.
Note that I said “in circulation”. They are certainly not in day-to-day use… the [Reserve] Bank expects the typical $100 note to last 70 years. When they do come back they are often not even unbundled…
Who’s got them? According to The Curse of Cash released this week by influential US economist Kenneth Rogoff, they are mainly in the hands of drug lords, human traffickers and tax evaders. We are actually worse than the United States, according to Rogoff. Ninety-two per cent of our currency is in large denomination notes, compared to 84 per cent in the US. Only Switzerland, Israel, Norway and Russia use big notes more than we do…
Phasing out high denomination notes would be painless, for those of us with nothing to hide. We would be invited to deposit them in banks in return for their full value up until a deadline, after which they would no longer be legal tender and worthless.
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Phasing-out large denomination bills makes a lot of sense. It would make life difficult for the black economy such as organised crime and tax evaders, as well as those engaging in welfare fraud.
Personally I believe Australia should phase-out both $50 and $100 notes. We are turning into a cashless society anyway, so phrasing-out these bills wouldn’t create much of a burden to the ordinary law-abiding person.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
