Thursday, September 13, 2007

More $100 notes than $20 notes?

Tell me this isn't true:

Take look inside your wallet or purse.

How many $20 notes, how many $50 notes and how many $100 notes do you see?

If you see mainly $20s, a few fives and tens and perhaps one $50 note I suspect you are like most people.
But not according to the Reserve Bank. Each year it tots up the total number of notes in circulation for its annual report.

The latest released yesterday shows that we hold three times as many $50 notes as we do $20 notes. Per person we hold five $5 notes, four $10 notes, seven $20 notes and an astounding eighteen $50 notes.

Of course many of these notes are not held by people but in cash registers and ATMs – which help explain the large number of $50 notes. Most ATMs are configured for $20 and $50 notes.

What’s more surprising is the very large number of $100 notes, a denomination not widely used ATMs...

The Bank’s figures show that there are now more $100 notes in circulation than $20 notes - a surprising result given the contents of most of our wallets: eight per person as opposed to seven.

Part of the explanation may involve the Y2K scare in the lead-up to the year 2000. The Bank says it printed and distributed a large number of $100 notes in the lead up to Y2K to help people and businesses prepare for the eventuality that they might have to use cash rather than computers.

But the figures in its report show that these $100 notes were not returned. In fact there are many more $100 notes in circulation now than there were back then.

There is evidence that many of them do not change hands. The Bank reported in 2001 that so few soiled $100 notes were returned for replacement that on average each would last 70 years. By contrast each $50 note would last only 25 years.

One likely explanation for the preponderance of unseen, unsoiled and apparently untraded $100 notes is that most remain wrapped up in bundles in briefcases, traded only in bulk and nefariously. When not traded they are hidden under floorboards and in roof cavities away from the eyes of the authorities.

The Good and Services Tax, introduced seven years ago, was intended to kill the black economy. The latest Reserve Bank figures suggest that it remains alive, if well hidden.


jamesm said...

This analysis has a bit of a history in other countries.

About 1998, someone in the Federal Reserve in the US did the same thing and found that some massive amount of circulated currency (about 50% of that on issue from what I recall), was in the form of very high denomination notes
($500 I think).

He then did a survey that stopped people in the street and did a count of what they were actually carrying. He concluded that most of that money was actually in the black economy and being used in drug deals etc.

It was then recommended that the US government recall existing notes and reissue them with a new design in order to hinder organized crime, but the recommendation was refused.

About a year later the Fed became aware that the new Euro notes would be issued in denominations up to 500 EUR and they approached the then Bundesbank suggesting that it mightn't be a good idea as it would facilitate crime. They requested that the highest denomination Euro be only 100. (There's also some political backstory here as the Americans were clearly trying to preserve the primacy of the USD against a new competitor, but never mind.)

What did the Bundesbank say? "We know. Look - large parts of the European economy are black, in some parts like Italy and Spain it may be as high as 20% of GDP."

"But as far as we're concerned, liquidity is much more important during the changeover and we're not going to threaten our economies - and the success of the Euro - by indulging in crime fighting".

I haven't found a reference for this but I read it in the International Herald Tribune at the time, meaning it was probably reprinted from the NY Times.

EconoMan said...

I have read something similar, about when the European bank planned to introduce the 500 Euro note, the US were shitscared that the US dollar would collapse. Why? Because much/most? US currency, particularly high domination stuff, is used overseas. Primarily in crime, drugs etc.

As to Australia's notes: Another big location for $100 notes is the Casinos and gamblers. I'm a semi-serious poker player, and I have 4 $100 notes in my wallet. Not long ago I had 40 in my bankroll at home, but I banked it to invest it.

Anonymous said...

And everyone's okay with this?

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