RDP 2018-12: Where's the Money? An Investigation into the Whereabouts and Uses of Australian Banknotes Appendix A: Ground-up Calculations

A.1 Wallets

Participants in the Reserve Bank's Consumer Payments Survey are asked how much cash they are currently holding in their wallet. This information, coupled with population data from the ABS, can be used to estimate the total stock of cash held in wallets.

To do this, participants in the CPS are split into cohorts based on age. Average wallet holdings for each cohort are then calculated. Because the CPS only includes the adult population, those aged 9–17 are assumed to hold half as much cash as those aged 18–24, and those aged less than 9 are assumed to hold no cash. To calculate the total stock of cash held in wallets at the time of the CPS, average wallet holdings are multiplied by the number of people in Australia within each cohort. A time series is generated by tracking the size of each cohort over time using population data from the ABS, and adjusting wallet holdings for changes in the CPI.

The amount of cash held in participants' wallets was asked in the 2010, 2013 and 2016 waves of the CPS. The method outlined above produces different estimates depending on which wave of the CPS is used. An average of the three series is used. Australian population data by age group are only available to June 2017. To estimate cash held in wallets after June 2017, the June 2017 figure was projected forward using average growth over the previous five years.

A.2 Financial Institution Holdings

Authorised deposit-taking institutions (ADIs) (broadly consisting of commercial banks, credit unions and building societies) hold physical currency in ATMs, branches, and cash depots, with these holdings reported to the Reserve Bank; we assume that the share by value of coins and foreign currency is negligible. For non-ADIs, we estimate cash holdings as the number of ATMs deployed by independent ATM deployers multiplied by an assumed average value held in each ATM set to 25 per cent of their capacity.

A.3 Self-serve check-outs (SSCs)

The stock of cash held in SSCs is estimated using the number of cash-accepting SSCs in Australia and the average amount of cash held per cash-accepting SSC.

The number of cash-accepting SSCs is estimated in three stages. First, the number of stores with SSCs is approximated using the number of Coles, Woolworths, Kmart, Target, Big W and Bunnings stores (found in the annual reports of Wesfarmers and Woolworths Group). Second, it is assumed that the number of SSCs per store is zero in 2007, gradually rising to ten for Coles and Woolworths and five for the other retailers by 2017. Finally, we assume that all SSCs accepted cash when they were first introduced, but that the share of cash-accepting SSCs fell to 60 per cent over the following decade. We assume that $10,000 is held by each SSC at the start of the day to be used as change and for cash withdrawals (although our overall results are insensitive to this figure and are largely unchanged if we instead use $3,000, for example).

Data on the number of stores for each of the retailers listed above are only available to June 2017. To estimate cash held in SSCs after June 2017, the June 2017 figure was projected forward using average growth over the previous five years.

A.4 Tills

The stock of cash held in tills is estimated using the number of tills in Australia at a given point in time and the average amount of cash held per till at that point in time. Similar to SSCs, we are interested in the number of banknotes held in tills at the start of the day. Cash held by businesses due to cash transactions is estimated below.

We approximate the current number of tills in Australia by the number of EFTPOS terminals (excluding those at SSCs), which was around 900,000 as at June 2017 (Figure A1). For earlier periods, the assumption that every till had an EFTPOS terminal is not valid, so instead we deflate the number of tills as at June 2017 by real retail sales. This series can be used to generate an implied share of cash registers with EFTPOS terminals back to the late 1980s. Given the introduction of EFTPOS in the 1980s, the results appear broadly reasonable.

The average amount of cash held per till is estimated at June 2017 as $500, and this figure is then deflated by the CPI. The total stock of cash held in tills is then calculated as the product of the number of tills and the amount held per till. Note that deflating the number of tills by real retail sales and deflating the amount held per till by the CPI broadly amounts to deflating the total stock of cash held in tills by nominal retail sales.

A.5 Businesses – Unbanked Cash Takings

In addition to cash floats held in SSCs and tills, businesses also hold cash that has been received via consumer cash payments. Assuming that businesses bank such cash on a weekly basis, the total stock of cash held by businesses due to cash transactions – unbanked cash takings – will be approximately equal to half the value of weekly consumer cash transactions. We use the same estimate of cash spending as in Section 4.4.1.

A.6 Gaming Machines

Queensland Treasury collects data on both the number and turnover of gaming machines in Australia. While the number has been broadly stable since 2002 at around 200,000, turnover has increased by around two-thirds, from $85 billion to $143 billion. Given this, we estimate the stock of cash held in gaming machines based on the flows into gaming machines rather than the number of gaming machines.

However, an important distinction needs to be made between turnover and the amount of cash put in gaming machines. Turnover represents the amount bet, not the amount expended. And because the state governments each specify a minimum win ratio – typically around 0.85 – gambling turnover can far exceed the net amount of cash put in the gaming machine.^[24] To account for this, we use Queensland Treasury's measure of gambling expenditure (turnover less winnings) to approximate the total flow of cash into gaming machines. To estimate the stock of cash held in gaming machines at any point in time, we simply convert this flow to a weekly figure and divide by two. Similar to businesses' unbanked cash takings, we have assumed that gaming machines' takings are banked weekly.

Data on gambling expenditure are only available to June 2016. To estimate cash held in gaming machines after June 2016, the June 2016 figure was projected forward using average growth over the previous five years.

A.7 Tourists (and Other Overseas Visitors)

We estimate four components related to tourists' holdings of Australian banknotes:

• tourists in Australia holding banknotes obtained in Australia;
• tourists in Australia holding banknotes obtained overseas;
• tourists about to come to Australia holding banknotes obtained overseas; and
• overseas foreign exchange businesses servicing tourists about to come to Australia.

We start by splitting tourists' total spending in Australia – from Tourism Research Australia (TRA) – into various payment methods. First, tourists' card payments can be approximated using data on payments that were made with cards issued overseas. Second, tourists' cash payments with domestically sourced cash can be approximated by withdrawals from domestic ATMs using cards issued overseas. Third, because tourists often earn income while in Australia, some share of tourists' spending will include card payments made from Australian bank accounts and cash payments made using ATM withdrawals from Australian bank accounts. We approximate this using data on income earned in Australia by tourists from TRA.^[25] Without further data, the split between cash and card purchases is held in the same ratio as payments made with cards issued overseas and domestic ATM withdrawals using cards issued overseas. Finally, payments made using cash sourced overseas is estimated as the residual. This is not a perfect calculation, with the estimated share of payments made using cash sourced overseas occasionally turning negative. However, without more information it is difficult to improve upon this calculation.

Spending with cash sourced domestically (i.e. through both cards issued overseas and via Australian bank accounts) is converted to a stock in three steps:

1. average spending per tourist per night using domestically sourced cash is estimated by dividing total spending using domestically sourced cash by the number of tourists in Australia and the number of nights stayed in Australia per tourist;
2. this figure is converted to an average stock held per tourist by assuming that, on average, tourists visit an ATM once every five days and hold a small buffer of cash equal to 10 per cent of anticipated spending;
3. we then multiply this by the number of tourists in Australia per night to arrive at the total stock of domestically sourced cash held by tourists in Australia.

The stock of cash sourced overseas held by tourists in Australia is similarly estimated. Total tourist spending using cash sourced overseas is converted to an average spending per tourist value. Tourists are then assumed to have initially entered Australia with a stock equal to this spending value, a stock which is entirely extinguished before they leave Australia. The average stock held by each tourist over the duration of their trip is then approximated by half of their initial stock. Multiplying this amount by the number of tourists in Australia per night yields an estimate of the stock of overseas sourced cash held by tourists in Australia. However, and as noted, estimated spending by tourists using overseas sourced cash can be negative. In these periods we simply assume that tourists' stock of overseas sourced cash is zero.

The stock of cash held by tourists about to enter Australia can also be estimated using the spending data. We simply assume that soon-to-be tourists acquire the stock of cash they intend to bring to Australia one month prior to their trip. The total stock of cash held by tourists about to enter Australia is then estimated as average intended spending in Australia with overseas sourced cash per tourist multiplied by the number of tourists about to enter Australia.

Finally, we estimate the stock of cash held by overseas foreign exchange businesses by assuming that they hold a stock of cash equal to two months' worth of outflows (averaged over the previous six months). Here, outflows refers to cash acquired by soon-to-be-tourists.

Data on tourism expenditure in Australia are only available to December 2017. To estimate all components of cash held by tourists after December 2017, the December 2017 figures were projected forward using their average values over the past year.

Footnotes

For example, suppose you put $150 cash in the machine and bet in $1 increments until your money is entirely expended. Given a win ratio of 0.85, you expect to lose 15 cents on each spin. But this would be split between the loss of the $1 you bet, and the 85 cents you win. If you repeated this process until your money was expended, you would on average have bet $1,000, winning $850 along the way but losing your initial $150. Here, turnover is $1,000, winnings is $850, and net cash put in the machine is $150. [24]

Income from the sale of motor vehicles and the sale of other capital goods – which, based on the TRA data, comprise only a small share of total income – is excluded on the assumption that most of this income will not be spent in Australia. [25]