Note rise seems hidden
There is a record amount of bank notes circulating in the economy right now, but they may be hard to spot.
“I'm sure this surprising to many people given their own experiences, as people are using cash less and less,” says Melissa Hope, Head of Note Issue at the Reserve Bank of Australia.
“But bank notes are increasingly being used as a store of wealth, and that means they are basically under mattresses [rather] than in registers.”
In late 2019, there was about $80 billion worth of notes circulating in Australia. A year later, that figure had increased to $100 billion; “an awful lot of money”, Ms Hope says.
The RBA says cash hoarding has been continuing throughout the COVID-19 pandemic, and it has a number of theories as to why.
“The first is around economic uncertainty,” Ms Hope said.
“When people are uncertain, you see a sizeable surging in cash demand — we saw this during the financial crisis in 2008.
“But there's another reason, too: interest rates are low. People don't lose as much in the way of interest by having their money under the mattress compared to in a bank account.”
The increase in hard cash is an anomaly, going against a clear overall trend away from physical currency.
The long-term trend is moving towards digital transactions, and for that reason, the RBA is reviewing how banknotes are distributed around the economy.
“We are conducting a public consultation to determine what changes we might need to make to the distribution system to make it fit for purpose, acknowledging that cash usage will continue to change,” Ms Hope says.
“We print as many bank notes as what we think will be needed by demand.”