The curious case of the missing billions

Toilet paper, pasta, soup, rice, flour, cleaning products. We’ve shown ourselves to be world champion hoarders from the outset of the coronavirus pandemic. But there is another item we’re accumulating – cash.

Despite the push towards digital transactions during the crisis, so many Australians have been stashing cash that the Reserve Bank has increased the notes in circulation from $83 billion to $94 billion.

“The central bank has seen a sharp uptick in Australians stocking up on banknotes in recent months on the back of growing financial concerns,” reports Business Insider.

COVID-19 has “accelerated the shift to electronic payments, [but] there has, paradoxically, also been record demand for banknotes,” Reserve Bank of Australia (RBA) governor Philip Lowe told a parliamentary committee.

“Some people seem to be wanting to keep some extra money at home.”

This is despite cash withdrawals dropping by half at the start of the pandemic.

The RBA believes a small group has taken out a “disproportionate” amount of cash. These people might be spooked by the prospect of recession or negative interest rates and some may be worried about a government proposal to ban cash transactions over $10,000.

“The $50 is the note of choice for those keeping cash under the mattress,” reports Nine, with 143 million more on issue in July than in February.

“There are now $46.4 billion worth of ‘pineapples’ around, compared to fewer than $40 billion at the start of the year.”

Previous RBA research found ongoing growth in circulation “appears to reflect growing use of banknotes as a store of value”. Up to three-quarters of outstanding banknotes, by value, are used for this purpose.

Cash, while used less frequently than in the past, “is still widely held for precautionary purposes”, the RBA said.

RBA senior manager Richard Finlay told a senate inquiry into the proposed cash ban last year: “It’s probably the case that most households have very little and a few households have a lot, and maybe people overseas hold Australian dollars.”

The ABC reports consumers aged 65 or over still made over half of their payments in cash in 2019.

“Lower-income households also tend to pay in cash more often than households in higher-income groups.

“And while cards are now used more often than cash for all payments over $5, cash still accounts for a significant share of small transactions: about 45 per cent of payments of $10 or less.”

There is an international push for a world without cash, in part to counter illegal activities such as tax evasion, drug trafficking and terrorism.

In Australia, the government estimates up to $50 billion is lost to the black economy each year.

Some European countries have already banned cash purchases for large transactions. China is moving to replace cash with a central bank-issued digital currency.

Only 27 per cent of Australia’s consumer payments were made with cash in 2019, compared with 37 per cent in 2016, and 69 per cent in 2007.

Nearly a third of people who received the federal government’s first COVID-19 stimulus payments in March saved the money, according to Australian Bureau of Statistics (ABS) data.

The $750 payment to 6.5 million Australians was intended to encourage economic activity via spending.

However, 29 per cent of recipients saved it, and 28 per cent used it to pay bills.

The survey of about 2600 people, conducted between May 10 and 23, found 12 per cent mainly used the money to buy food.

It also showed less than 10 per cent of people used it to pay their mortgage or rent.

The data showed nearly 70 per cent of the stimulus went to people aged 65 and over, and 45 per cent of that group added the money to their savings.

Brendan Coates, household finances program director at the Grattan Institute, said retirees tended to save extra money.

“Savings rates rise even if the payments are effective,” he said.

“You don’t spend it all, that gives us more of a buffer as we come off the JobKeeper and JobSeeker payments.

“Our research shows that the average retiree is a net saver, that even applies to those receiving the pension,” he said.

“They are saving for a rainy day, even when it is pouring outside.”

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Written by Will Brodie


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