A One-Time Boost for Cash Volumes in Australia

Australia is often touted as one of the countries moving the fastest to becoming a cashless society. Whilst longer-term projections and data on payment habits support that view, recent figures from the Reserve Bank of Australia (RBA) and the Royal Australian Mint (RAM) indicate the opposite over the last year, albeit the (hopefully) one-off consequence of COVID.

The RBA, its recently published annual report, stated that the pandemic continued to affect banknote demand throughout 2020/21. Demand for $50 and $100 banknotes remained strong in the second half of 2020, suggesting their use as precautionary holdings, but abated over the first half of 2021. The demand for lower-value banknotes remained subdued, consistent with the ongoing decline in the use of cash as a means of payment.

At the end of June 2021, there were 1.9 billion banknotes in circulation, worth $95.5 billion – up by 6% from the previous year. As a per cent of nominal GDP, the value of currency in circulation reached a historical high of 4.8% during the year.

Counterfeiting during the year remained low, at 9.5 ppm, mostly of the $100. The RBA says that counterfeiters continue to target first polymer series banknotes; there has been very little counterfeiting of the new NGB banknotes to date.

Despite the strong growth in banknotes in circulation, said the report, the continued decline in cash use for transactions is putting pressure on the economics of the cash system. As a result, it will commence a consultation on banknote distribution arrangements in the second half of 2021.

RBA’s subsidiary Note Printing Australia (NPA), delivered 234 million Australian banknotes, compared with 331 million the previous year, all of the Next Generation Banknote (NGB) series, which was completed during the year with the introduction of the new $100.

NPA also delivered 227 million banknotes for Malaysia, Papua New Guinea, Singapore and Vanuatu.

Surprise demand for coins

RAM has also recently published its annual report for 2020-21. It had expected at the start of the pandemic that demand for coin would reduce considerably, but, it says, ‘surprisingly the Mint experienced an increase in the demand for circulating coins throughout the Australian economy – and not by a small amount’.

This demand resulted in RAM increasing production of all six denominations. Over the 12-month period, it exceeded the budget for circulating coin sales by $42m (105%).

RAM also recorded its largest (by volume) commercial revenue result in its 55-year history, partly due to the strength of gold for investment, and partly due a booming collectors market.

Revenue from circulating coins was $82 million, 155% higher than the previous year. Seigniorage at $45 million was 66% higher. RAM produced 135 million coins for the domestic market, and 42 million circulating coins for countries such as Papua New Guinea, Tonga and Timor-Leste, a 600% increase over 2019-20.

In the collectable and investment business line, sales of $111 million were 8% above budget and 12% above last year’s results.

Fur the current financial year, RAM is forecasting sales of $188 million and a surplus of $57 million. Circulating coin revenue is forecast at $74 million, with seigniorage at 41 million. Collectable and investment coin revenue is forecast at $114 million.

It does, however, predict that the continued adoption of contactless payment methods will almost certainly see the overall decline in coin usage continue, and a return to traditional demand levels by the end of 2024.

All values are expressed in Australian dollars.