RDP 2018-12: Where's the Money? An Investigation into the Whereabouts and Uses of Australian Banknotes 7. Conclusion

Information on the whereabouts and uses of outstanding Australian banknotes is of interest for a number of reasons, including to aid in forecasting future banknote demand and to assess the extent to which banknotes are used to facilitate illegal activities or avoid tax obligations. This paper uses a range of techniques to estimate where Australian banknotes are and what they are used for. Our results suggest that of total outstanding banknotes: 15–35 per cent are used to facilitate legitimate transactions; half to three-quarters are hoarded, of which we can allocate 10–20 percentage points to domestic hoarding and up to 15 percentage points to international hoarding; 4–8 per cent are used in the shadow economy; and 5–10 per cent are lost (see Table 3). Our best guess of point estimates for each of the above usage categories are broadly the midpoints of the ranges given, with the exceptions of the sub-categories of hoarding: even the upper estimate of 20 per cent of outstanding banknotes being used for domestic hoarding is likely too low, while international hoarding and the hoarding of profits from criminal activity may also be higher than suggested by the estimation techniques that we employ.

In addition, our results suggest that the share of banknotes used in transactions has fallen by around 1 to 1½ percentage points per year over the past few decades. This is consistent with the Reserve Bank's Consumer Payments Survey data, which show that debit and credit cards have recently overtaken cash as the most frequently used means of payment. Consequently, it is likely that non-transactional demand has been the driving force of recent growth in the value of banknotes on issue.