THE MONEY PILE: Australians Are Rapidly Taking Up Electronic Payments But Cash Is Still King

Mmm cash. Photo: Breaking Bad / IMDB

One of the major themes Australia’s financial economy is the growth of electronic payments at the expense of cash transactions – a trend driven by internet banking, trading and e-commerce as well as better connectivity and increased smartphone use.

But although cash usage continues to fall, the amount of cash on issue has grown by around 50% since 2006. There’s now an estimated $60 billion worth of issued banknotes and coins in Australia. Here’s the chart showing the growing pile of cash on issue.

It’s estimated there are eleven $100 denomination banknotes on issue for every man, woman and child in Australia. So if it’s in increasing circulation and but decreasing in use, what’s happening to all the cash?

This table from a study by the Australian Payments Clearing Association (the PDF is here) on the evolution of cash and its use in transactions shows where all the hard cash is being held.

At the same time payments options have been diversifying since the GFC, a major pattern in the Australian economy has been the paying down of debt by Australian households. It’s reasonable to infer that cash hoarding is happening naturally in parallel, as Australians focus on living within their means and build themselves a buffer against external shocks.

As an illustration of this, take this chart (there are stacks in the report), which shows how Australians suddenly realised around the time of the GFC that taking money out of the ATM on the credit card at 20% interest or more probably wasn’t a good idea.

Back to the cash. Of the $60 billion in circulation it is estimated banks hold just $1.8 billion, ATMs are housing $2 billion in notes, while gambling holds $1 billion. According to the study around $10 billion is being hoarded domestically, probably under people’s mattresses, stuffed down the back of couches or in roof cavities across suburban Australia.

The study found cash’s total share of payment transactions was 59% in 2013 and is forecast to drop about 3% a year to 43% by 2018. In 2013 cash transactions totalled $11.7 billion in Australia.

There is an estimated $6 billion doing the rounds in “illicit activities” and another $15 billion being stowed offshore, away from the eyes of the ATO.

Coin hoarders are stashing about $1.2 billion and “under-the-counter” cash payments to tradies, nannnies and the like in the black economy account for about $3 billion.

Even though cash transactions are declining, there’s always going to be a need for it. APCA CEO Chris Hamilton said: “We will always have a need for cash, but the take-out here is that cash won’t be the first or only choice for making any payment, regardless of what it’s for.”

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