RDP 2018-12: Where's the Money? An Investigation into the Whereabouts and Uses of Australian Banknotes 2. Background Data and International Comparisons

Before commencing our detailed discussion on where Australian banknotes are and for what purposes they are used, we briefly outline some background information and key trends.

As noted earlier, there are roughly $3,000 worth of banknotes outstanding per person in Australia. Although this figure might seem high, Australia is by no means an outlier amongst other comparable countries (Figure 1). By denomination, the vast majority of the value of outstanding banknotes – 93 per cent as at June 2018 – is accounted for by the $50 and $100 denominations, split roughly evenly between the two. By contrast, $5 banknotes represent just 1 per cent of outstanding value, $10 banknotes represent 2 per cent, and $20 banknotes represent 4 per cent. As such, although this paper considers banknotes in general rather than high denomination banknotes in particular, trends in the later drive results in the former.

We now outline some key trends evident in the Reserve Bank's Consumer Payments Survey (CPS).^[4] The survey, conducted triennially, provides the Reserve Bank with a nationally representative dataset of the payment habits of Australian consumers and how these habits have changed over time. It is a key source of information on cash use.

Data from the CPS show a steady shift away from cash as a means of payment over the past decade, driven by an increasing use of cards (credit and debit) to carry out in-person payments (Figure 2).

Comparing the share by number of payments made with cash across various demographic groupings (Figure 3; trends by value are broadly similar) shows:

• a faster decline in cash use in cities compared with regional areas;
• no substantial difference in cash use between men and women;
• that people on lower incomes (1st quartile) tend to use cash relatively more than those on higher incomes, although all groups show a broadly similar decline in cash use; and
• that older Australians use cash relatively more than younger Australians, with the difference having increased over time.

The CPS data show no substantial difference in cash use between people born in an English-speaking country and those born elsewhere, while those who are employed tend to use less cash, proportional to other means of payment, compared with those not employed. For example, in 2016, full-time employed people used cash for 30 per cent of transactions by number, whereas unemployed people used cash for 45 per cent of transactions and retired people used cash for 50 per cent of transactions.

We now turn to our estimates of lost banknotes (which we cover first as they will be used in the estimates that follow). After that we will consider banknotes that are used for legitimate transactions, banknotes that are used in the shadow economy, and banknotes that are hoarded, in turn.

Footnote

The Reserve Bank conducted the survey in 2007, 2010, 2013 and 2016; the next survey is planned for 2019. [4]