Reserve Bank Says Cash Orders Have Plunged by Two-Thirds in 3 Years

This photo illustration shows three Australian banknotes taken in Melbourne, Australia on Oct. 12, 2020. William West/AFP via Getty Images

Commercial bank cash orders declined during the 2022/23 financial year, with the Reserve Bank of Australia (RBA) issuing just one-third of a typical year’s amount, according to its 2023 annual report (pdf).

The RBA, a wholesale banknote distributor, issued a considerable decrease of around $3.1 billion in banknotes during the year.

Further, cash payments halved over three years to 2022, accounting for 16 percent of in-person transactions, compared with 32 percent in 2019, according to an RBA survey, which asked respondents to record all their transactions over a week.

The COVID-19 pandemic accelerated the physical cash decline when consumers and retailers were reluctant to handle potentially infected notes and coins. However, it had already been declining for many years as consumers switched to digital payments.

The RBA said, “There has been a broad-based decline in cash use across all demographic groups, though the declines were largest for groups that traditionally use cash more, such as the elderly, those on lower incomes, and those in regional areas.”

“There are parts of Australia where communities need more cash access points nearby. The Bank continues working with industry to ensure the wide availability of banknotes,” it said.

However, most Australians have reasonable access to cash and don’t need to travel far to withdraw money.

Meanwhile, the cash decline has placed pressure on the cash distribution system.

Therefore, an August 2022 RBA review recommended a more effective, efficient, sustainable, and resilient system.

Recommendations included an industry forum, better transparency and standardisation, increased quality sorting, and a commitment to monitor cash access and retail acceptance.

The industry forum has since been established, and the RBA is working to implement the others.

“These measures will improve transparency and flexibility in the distribution arrangements and protect high-quality banknotes in circulation,” RBA said, noting quality banknotes make for easier machine handling and reduced sham note possibility.

Billions Worth of Bank Notes Returned

Meanwhile, commercial banks returned around $4.1 billion of banknotes, mainly from previous series notes.

With more banknotes returned than purchased, the value of banknotes in circulation over 2022/23 declined by 1 percent, the most significant decline in around two decades.

Note numbers declined across all denominations except the $100 note, which grew more slowly than its historical average.

Higher interest rates, reduced savings, and a return to more usual spending behaviour post-pandemic contributed to this outcome.

Nonetheless, the value of banknotes in circulation remained high ($101.3 billion at the end of June 2023). In total, almost two billion banknotes are circulating, indicating that cash demand for the storing of value and potentially uncertain circumstances remains high, according to the Treasury.

Increased Digital Payments as Traditional Methods Shift

The RBA participated in the Treasury’s seven-year strategic plan for Australia’s Payments System (pdf), with Treasurer Jim Chalmers saying it comes after new digital products changed payment methods.

It sets out a vision for a modern payment system for greater economic competition, cyber-safety, innovation and productivity, according to the federal government.

The strategic plan noted that cash use reduced significantly, with cash retail payments falling from 27 percent in 2019 to 17 percent in 2022.

However, some individuals and entities still need to rely on traditional payment methods for personal preference, legislative requirements, lack of internet connectivity in rural and regional Australia, and technological capability.

“The cash system also provides resilience to the Australian payments system in times of natural disaster, crises, and network outages. While consumers’ preference for everyday payments is trending towards digital, the payments system must continue to include and be accessible to all Australians,” the report said.

It noted that card payments account for about 75 percent of retail payments, with 25 percent coming from mobile wallets.

At the same time, online debit and credit card payments grew over the past decade, now at a higher rate than pre-pandemic.

Further, there has been a 90 percent decline in cheque volumes in the last 10 years, with cheques now comprising of only 0.2 percent of non-cash retail payments.

Therefore, Mr. Chalmers said requirements for cheque payments would be removed, and government cheque usage would phase out before the end of 2028.

“We will also make changes to Commonwealth legislation,” he said.

The Australian Banking Association (ABA) welcomed the reforms.

“Payments are the lifeblood of our economy, but Australia is currently using a 60-year-old system for many everyday consumer and business payments,” ABA CEO Anna Bligh said.

Ms. Bligh said greater oversight and standard-making powers over digital wallets and other payment forms help maintain “security and efficiency.”

Shift ‘Well Underway’: Expert

However, RMIT Finance Associate Professor Angel Zhong said while banks support forthcoming regulations, new market players like Apple Pay are less optimistic.

Ms. Zhong noted that, “Apple Pay said regulations merely provide technical architecture rather than payment services.”

She said regulating digital wallet providers strikes a “crucial balance” between innovation and accountability, ensuring life-changing technology continues to serve the public interest.

“The shift towards a cashless society in Australia isn’t just a possibility, it’s already well underway,” she said.

“The blend of technological advancements, changing consumer preferences, and regulatory adaptations has set the stage for this transformation. The new regulations will help Australians navigate this transition more confidently.”