Even with card use levels increasing amongst consumer spending, cash continues to hold a 'significant and necessary role' in Australia's payments landscape. So why is it that so many Australian news sources are declaring that cash is dying?
Does the combination of debit and credit card use adding up to 51% of consumer transactions in 2016, while cash's once hefty majority dropped to 37% mean that cash is doomed to die a slow death? Hold your kangaroos, Australia... there's more to it than that.
By the end of March 2017, RBA published an Bulletin article titled 'How Australians Pay: New Survey Evidence' as part of their March Quarter 217 review. The Consumer Payments Survey (CPS) analysis concluded that:
'While more and more small payments are being made with contactelss 'tap and go' cards, cash is still often used for lower-value transactions and accounts for a significant share of payments for some segments of the community,' (Doyle, Fisher, Tellez and Yadav, 2017).
Fortunately, by September 2017 RBA's Bulletin article for that quarter titled, 'The Growing Demand for Cash' expanded on the survey, revealing that:
'While survey data indicate that the share of Australian consumers' payments made with cash continues to fall, the number (and value) of banknotes in circulation continues to grow at around its trend pace of 6% per year.'
There has also been a particular demand for banknotes of higher denominations over the last 10 years. It is understood that the three factors that contribute to the steadily growing demand are: population growth, inflation and real income growth. Previously, researchers believed banknote demand to similar factors: nominal GDP, interest rate and access to payments systems. However, the impact of the exchange rate in the post-crises period may also explain the growing demand for the $100 banknote.
The September Quarter Bulletin article begins with the sentence, 'Cash is an important element of the Australian payments system.' Yet, many Australian-news articles published this month suggest that Australia is on the cashless track.
One article claimed that a governemnt 'cash crackdown could bring in $5 billion a year' by implementing restriction on cash payments limits. The carrot? To crack down on criminals taking advantage of a system at the tax payer's expense. Yet, there is no evidence that such limitations would stop this from happening. Loopholes in a digital infrastructures are still abused but to a much further extent. Read more about the association between cash and crime here.
It is true that the estimated value of cash payments dropped from $218 billion in 20027 to $162 billion in 2016, while value of card payments rose from $250 billion to $496 billion. Yet, the share of cash value was steady between 2013 and 2016. This could be due to the increase in overall spending as well as population inflation:
'Importantly, because total payments have increased - due to factors such as population inflation and income growth - the fall in the total value of cash payments has not been as large as what is suggested by the changing share of cash payments which declined by more than half.'
Further still, the CPS does not represent everyone who uses cash in Australia, which may explain the evident decline in the total value of cash payments.
Over the last 10 years, Australia has seen an increase of approximately two millionoverseas student and tourist arrivals. Data shows that tourists are more likely to use cash than locals, but their respective demand for cash would not have been represented in the CPS. If estimations are correct, Australia's 2016 visitor cash expenditure may have added up to $11 billion.
The demand for cash from the shadow economy and foreign institutions will also have been ommited. While tourists often buy Australian dollars before arriving to the country, foreign currency exchange institutions around the world will also have contributed to unrepresented oversea demand for high denomination banknotes.
Finally, even though card usage has risen sharply, the value of banknotes in circulation and the demand for all denominations has been growing for over a decade.
'Although the share of payments made in cash continued to fall, cash was still used for over one-third of consumer payments.'
In March 2018, the Bank of International Settlements (the "central banks of central banks") published a Quarterly Review that found cash to still be king worldwide, according to figures derived from the averaged data of CPMI members and 22 additional countries, including Australia.
The BIS review revealed that even though there have been rapidly rising rates in card use, cash use was also increasing (from 7% to 9% since 2015), predominantly because it is preferred for its store of value and budgeting purposes. This is also true for Australia.
Excerpt from RBA's Payments System Board Annual Report (2017)
The use of cash has continued to decline relative to other payment methods as consumers shift to electronic payment methods, including for low-value payments. Despite this, cash still accounts for a material share of consumer payments, particularly small transactions, and is used intensively by some segments of the community.
Although the transactional use of cash is declining, the demand for cash more generally has continued to grow; cash is widely used as a store of wealth, often for precautionary purposes.
The value of banknotes in circulation increased by 5 per cent in 2016/17, slightly below its long-term trend growth rate of 6 per cent; at the end of June there were 1.5 billion banknotes worth $73.6 billion in circulation.
Although a smaller share of consumer payments are being made in cash than in the past, the 2016 survey indicated that cash remains an important part of the economy and payments system. Cash is still used for a significant share of consumer payments, is heavily relied on by some members of the community and is widely held as a store of value.
Flannigan, Gordon and Andrew Staib. 'The Growing Demand for Cash.' Reserve Bank of Australia. March Quarter 2017.Bulletin – September Quarter 2017. Published March 2018. Accessed 22 March 2018.
Doyle, Mary-Alice, Chay Fisher, Ed Tellez and Anirudh Yadav. 'How Australians Pay: New Survey Evidence.' Reserve Bank of Australia. March Quarter 2017. Accessed 22 March 2018.
Reserve Bank of Australia. 'Payments System Board Annual Report: 2017 Trends in Payments, Clearing and Settlement Systems.' RBA. March Quarter 2017. Electronically published March 2018. Accessed 22 March 2018.