The Reserve Bank of Australia (RBA) is backing the continued use of hard cash in Australia but notes that storing and transferring physical currency is becoming “very expensive.”
At a recent parliamentary inquiry hearing, RBA governor Michele Bullock stressed that the central bank would continue to support cash despite its declining role in the economy.
“While the cash of use of cash for everyday payments has declined in recent decades, it remains an important means of payment for many Australians,” she told the Standing Committee on Economics.
“Cash is used as a store of wealth, particularly during periods of economic uncertainty, and can be a useful backup for electronic methods of payment.
“The RBA is committed to supporting the Australian government’s policy objective to ensure cash remains a viable means of payment for as long as Australians want or need to use cash.”
However, the governor noted that consumers and businesses are not aware of how costly it is to maintain cash payments in the system amid a sharp fall in cash usage.
“The only price that consumers really face on cash is ATM withdrawal fees, and that’s reflecting the fact that someone’s got to get the cash out there, put it in the machine, refill it when it runs out,” she said.
“That’s the only place where people face a cost of cash. Otherwise, I don’t think people realise what it costs.”
In addition, only 7 percent of respondents, or an equivalent of 1.5 million Australians aged 18 and over, are mainly using cash for in-person transactions (80 percent or more of their transactions are in cash).
Cash Payments Are Costly
Bullock referred to a MasterCard study indicating that it is more expensive for merchants to provide cash payments than card payments despite there being no surcharge on cash.“It’s costly in terms of all the back office costs of counting it, taking it to the bank, particularly if you haven’t got a branch anywhere near you, [and] there’s theft costs,” she said.
The governor also stated that the cost of cash distribution has become another major concern.
“It’s becoming more expensive to store, process, and distribute cash around the country,” she said.
“At present, we have a single firm–Linofox Armaguard–that provides these services, and it has experienced financial difficulties because the revenue it’s receiving for these services is not meeting its costs.”
In October 2023, Armaguard approached major banks and financial institutions to ask for help, as the company was at risk of insolvency.
RBA Has No Solution for Long-term Cash Distribution
While the rescue package could help alleviate Armaguard’s immediate financial issues, Bullock said regulators needed to think about the long term.“We’ve got to think that cash is going to be around probably for another 10 years, and we’ve got to find a way of moving to a new system that means that distribution of cash can be undertaken and viable,” she said.
“There’s a number of options that could get you there, but the bottom line [with] cash distribution is someone is going to [pay].
“If you don’t want the consumers to pay, then someone has to pay, and it’s going to be difficult to figure out how it is subsidised, because that’s what we’re asking for normally.”
The governor further stated that the idea of having consumers pay to use cash would not go down well, and thus, somebody needed to cross-subsidise consumers to make cash payments viable.
However, so far, the RBA has not found a way to solve this issue.
“Where do we find this cross-subsidisation? Is it the banks that have to take it on and basically provide cash services to their customers and cross-subsidise that? How is it going to work?” she asked.
“We don’t have a solution yet.”
