Cash is no longer king

Michelle Bullock, the Assistant Governor (Financial Systems) at the RBA talks about a new report showing that card payments overtake cash payments for the first time.

Introduction: Card payments overtakes cash payments for the first time

Ross Greenwood: Welcome back to Money News right around Australia. Plenty of break news going on. One thing that is a trend that’s been coming for some time that certainly would resonate with most people is, for the very first time card payments and direct debit payments have overtaken cash payments. For the first time in our history. This is just occurred. The Reserve Bank reported it today.

The Reserve Bank last year put out a terrific report about the future of cash in our society. It note that at time is around 1,5 billion Australian bank notes in circulations. With around $73 billion. That the bigger denomination notes, 50s and 100s, account for around two thirds of the number of bank notes in circulation. As you know we told you about that before.

They can’t work out where all the $100 notes go to. This important also because the Reserve Bank right now is doing significant overhauls of our bank notes. You’ve seen the new 5s in circulations, the new 10’s around the place and 50s are coming. 20s as well. Let’s trying and find out exactly what the future of cash does hold in our society. Best person to talk about this, the Assistant Governor in Financial System from the Reserve Bank of Australia, Michelle Bullock is on the line right now. Many thanks for your time, Michelle.

Interview: Michelle Bullock, Assistant Governor, Financial System, Reserve Bank of Australia

Michelle Bullock: It’s a pleasure, Ross.

Ross Greenwood: Older people listening to this, would sit there almost shake their heads imagining the technology has made the card payment overtake the cash, that is not as important. We’ve talked about the cashless society for years, are we necessarily heading that way quickly, do you believe?

Michelle Bullock:  I don’t believe we’re heading that way quickly, Ross. What the survey demonstrate is, there is still a significant role for cash at the moment in the economy. You mentioned older people as well. From what you observed in the survey data is that, older people tend to use cash even though less than they used to. They still tend to use it more than younger people use. There’s a variety of different ways of people use it in society.

Ross Greenwood: There’s no doubt the contactless card was used in the change of technology, since smaller transactions now being conducted with those tap and go cards. That is really the big change to see in more smaller transactions. Therefore, less need for cash necessarily in people’s pockets.

Michelle Bullock:  Yes, you’d quite right. What the survey shows is that the tap functionality of a card now has made a much easier, much quicker to use cards. Before, when you had to stick your card into the terminal and put in your PIN, it was a bit laborious. Didn’t want to do that maybe for a $2 transaction but you can now. It’s quite quick.

The tap is replacing cash for small valued transactions. It’s also replacing the standard credit and debit card transaction for high value transactions.

People value the speed of it. Having said that, there are still a lot of people would like to use cash. In fact, one of the things the survey asked people is why. Really interesting point people might for why they like to use cash is help them with budgeting. You find that cash in lower income decile is in fact a more important payment instrument than necessarily it is in higher ones.

Ross Greenwood: Just a little side, is it actually make your job as the Assistant Governor of our financial system at the Reserve Bank easier? The more that there are this tap and go transactions because it gives you the authorities and ability to work out where we’re spending our cash? How we’re spending our cash and therefore you can track those payments in regards of trying to work out the movement of money throughout our economy?

Michelle Bullock:  Certainly, it’s much easier to get information on electronic payment systems that you say. You can get that information from the bank. In one way, it gives the much better monitoring ability. Having said that, as I said, cash is still very important. We only get a read on how it used in transactions once every three years when we do the survey.

There’s another point to, which is that with electronic payment system obviously they need to be very resilient. If people aren’t carrying cash and the payment system isn’t working, then everything grinds to a halt. I, myself, always carry a little bit of cash. Always like to have a bit, just in case I need it.

Ross Greenwood: The final one is despite the fact the number of card transactions is overtaking cash transactions for the first time, the truth is being more currency push into our economy. I noticed Net report last year that the rate of currency to GDP growth, in other words currency in the economy versus the overall economy, has risen to its highest level in several decades. In the United States, at it’s highest level since ‘1950 for example. It’s not also the cash is disappearing quickly out of the whole system.

Michelle Bullock:  That’s correct. The cash is still going out there. As you said in your introduction, a lot of it is in 50s and 100s dollar notes. Whereas the transactional notes, the 5s, 10s and the 20s are growing but not as quickly as the higher denomination bank notes. There’s a few things going on here, obviously we can’t track it. We don’t know where it is, but we do know from the survey, we do asked people.

Do you hold cash elsewhere than in your wallet? Do you hold spare reserve then? People do respond that they do. They hold it for emergency reasons and they hold it for store of values. Its a lot of debate about where all these high value bills are but there is still need for some people in the society for using, for store value and emergency.

Ross Greenwood: Certainly nothing on with me. I can tell you that Michelle Bullock and probably not with you as well. The Assistant Governor of financial systems at the Reserve Bank of Australia, great to have you on the program and Michelle, we really appreciate your time.

Michelle Bullock:  No worries. Thanks very much, Ross. Bye bye.

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