Australians are literally rolling in money
Despite the trend towards digital payments, many Australians are holding onto large amounts of cash as a precautionary measure.
Cash means different things to different people.
For a fund manager, it is simply that liquid part of the portfolio that is there to pay out redemptions or reallocate to other sectors when the time is ripe.
However, for many Australians cash is precisely that – big wads of notes that are stashed away for a rainy day, safe from the greedy hands of governments and banks.
Despite the everyday use of cash being just a memory for most of us, particularly compared to the days when payrolls were made up of actual cash in envelopes, there is a surprising amount of cash being stockpiled within Australia.
Figures produced by the Reserve Bank of Australia (RBA), show that every single Australian holds an average of 38 $50 notes.
Given that I don’t have any of them and many Australians don’t, that means there are a lot of pineapples out there stashed in safes or under mattresses.
Cash stashes are becoming more common
The other mystery about all of this cash is that it is effectively out of circulation, it is not being spent in shops and recirculated through the economy but is stashed somewhere.
One theory is that drug dealers are sitting on piles of cash but surely that can’t account for too much of the cash pile so where could those missing, out of circulation notes be?
While there are fewer $100 notes printed, they are so rare in circulation terms that it is a bit of a surprise when you finally see one.
Pandemic drove demand
Perhaps unsurprisingly, the RBA says the pandemic greatly increased demand for bank notes, with 2020 and 2021 being bumper years for bank note demand as people showed “a desire to hold cash for precautionary or store-of-wealth purposes.’’
According to the 2022 RBA annual report, holding cash as a store of wealth became more popular during the pandemic even as the actual physical use of cash became less important due to the rapid increase of contactless payments.
“It is expected that the pandemic will have had a lasting effect on cash usage, with a survey of households conducted in late 2021 by the RBA suggesting around one-quarter of respondents have permanently reduced their preference for cash use as a result of the pandemic,’’ the annual report found.
Interestingly, the value of banknotes in circulation reached $102.3 billion at the end of June 2022, which equates to around 4.5% of nominal GDP.
Given the reducing role of cash in transactions, the 7.2% growth in cash supplied during 2021/2022 year suggests the “stash” market is still fairly healthy, with just under two billion bank notes now out there in the wild.
Most of that growth in demand was for the higher denominations – the pineapple and avocado – which also backs up the theory that more stashing of cash is going on.
Cash is getting harder to copy
Fortunately, given the stakes involved, the level of counterfeiting in Australia is very low and almost entirely being made up of poor-quality copies of older notes that have fewer security measures.
In 2021/2022 about 12,000 counterfeit notes with a value of $900,000 were found to be circulating, with most of the fake notes being the earlier polymer version of the $100 note.
The newer NGB banknote series remains very difficult to copy and since the first one was released back in 2016, there have only been 81 NGB counterfeits detected – a lot fewer than the 122,000 counterfeits of the previous series of banknotes.
Most of these copies were very poor quality too – proving that the new design is achieving its aim to reduce counterfeiting.
Inflation the biggest danger for cash
While a lot of people are obviously very keen on stashing cash, there is one real danger to this strategy apart from the obvious one that piles of cash can be lost, stolen or robbed.
With the return of higher inflation, the purchasing power of cash has been falling quite alarmingly, which, over time, will mean that those pineapples and avocados sitting in the safe will buy you a lot fewer goods and services than they used to.
Much like the fund manager we started with, keeping the cash portion of the portfolio fairly low and the majority invested is a much surer way to ensure that you preserve your purchasing power.