Australians still hold much wealth in cash, but the Reserve Bank says there must be a limit
As we move into a world of negative interest rates, the IMF says its ideal world is one without cash.
The theory that the real motive behind the Federal Government's proposed cash ban is to create an Orwellian state that gives banks greater control over people's money — and authorities greater control over people's behaviour during recessions is "far-fetched", according to the Reserve Bank.
A controversial bill to ban cash payments of $10,000 and impose two-year jail sentences for people using cash for purchases above that limit has enraged many members of the public who say the Government should not interfere with their legal right to spend cash how they wish.
The proposed cash ban bill passed the Lower House late last year, and was due to start on January 1, but will not become law until after a Senate inquiry looks into it.
The Federal Government has said the measure is intended to fight the black economy, by stamping out tax evasion, money laundering and other crimes.
Thousands of stakeholders have made submissions to the inquiry. Among many other objections raised, some expressed a concern that the proposed law may leave people's bank deposits vulnerable to negative interest rates.
This is a situation whereby, instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank.
Several MPs, including independent MP Andrew Wilkie, have previously said they would not be supporting the bill as it stands, with Mr Wilkie relaying people's concerns that it was "designed to push people into the clutches of the banks".
RBA says Australia 'unlikely' to see negative interest rates
But the Reserve Bank's head of payment policy Tony Richards rejected the view that the proposed law was "a precursor to the imposition of negative interest rates and the Government deciding to withdraw cash from circulation".
"With respect, I think some of those concerns that you've alluded to are a little far-fetched," Dr Richards told the Senate inquiry during a hearing in Canberra last month.
Dr Richards noted that RBA Governor Philip Lowe had already indicated that negative interest rates in Australia were extremely unlikely.
This is despite the cash rate already sitting at a record low 0.75 per cent, and economists predicting more rate cuts early this year.
"There are almost no examples of negative interest rates for household deposits in those few countries that have had negative policy rates," Dr Richards said.
A number of public papers and statements by the international body in charge of financial stability — the Washington-based International Monetary Fund (IMF) — have also talked of the benefits of a world without cash.
But Dr Richards said the notion that cash might be about to be withdrawn from circulation also "seems a little far-fetched".
"The Reserve Bank and the Government have both said in different contexts recently that cash is a very important part of our payment system and our economy," he said.
Australians hold much wealth in cash
Dr Richards said RBA research found "very large transactions by households are very infrequent and, when they occur, they use electronic payment methods or occasionally cheques".
Despite fewer people using cash for major purchases, it was still the case that Australians were opting to store a considerable amount of wealth in physical bank notes.
Dr Richards said, of about $80 billion worth of cash in circulation daily, around 25 per cent of that was used for buying and selling, while the rest was being held by Australians.
"If you just take the numbers literally, it would be roughly $2,000 [per household], but in actual fact it's probably the case that most households have very little and a few households have a lot, and maybe people overseas hold Australian dollars," Dr Richards said.
Asked by Labor senator Alex Gallacher why the Government would want to stop Australians from spending their money "which they've legitimately saved or decided to park under their bed and not in the bank", Dr Richards responded: "This was a recommendation of the Black Economy Taskforce."
Dr Richards also rejected assertions that the proposed cash ban could lead to banks gaining more control and increasing fees on consumers.
"The bigger picture is that payments are already flowing to the banks," Dr Richards said.
He said service fees paid by Australian merchants "are significantly lower than in most other countries".
Evidence for proposed law 'anecdotal'
The taskforce had noted a $10,000 cash limit was one way to stop criminal gangs using large cash purchases of cars, houses and jewellery to launder their gains from illegal activities.
The laws would apply to all payments made to businesses with an ABN for goods or services, affecting major purchases like cars and building renovations.
The Government has said the measure would not apply to individual-to-individual transactions, such as private sales where the seller does not have an ABN, or cash payments to financial institutions.
The head of Treasury's black economy division Patrick Boneham told last month's hearing that taskforce's view was formed based on anecdotal evidence.
"I think if you ask most people if they have been offered a lower price for cash, they will potentially say 'yes'," Mr Boneham said.
The taskforce had made a qualitative estimate — based on a wide definition of what activities make up the black economy — that about $50 billion was lost to the black economy annually.
This estimate included a wide array of activities including underpaying wages or paying for work cash-in-hand, under-reporting income, sham contracting, phoenixing, identity fraud, ABN and GST fraud, illicit tobacco, money laundering, unregulated gambling, criminal acts, counterfeit goods and illegal drugs.
Business lobbies including CPA Australia and the Australian Chamber of Commerce and Industry (ACCI) have previously said there is no legitimate evidence that the proposed law will stop black economy activity, and in fact, it may actually result in more sophisticated cash economy activity.
The proposed law does not currently capture digital currencies such as Bitcoin.
Dr Richards said this could result in a shift towards cryptocurrencies "if an entity is currently transacting in cash for nefarious reasons and decides that it's no longer going to use cash".
AUSTRAC says bill will help fight money laundering
AUSTRAC told the inquiry it also supported the proposed law, saying a $10,000 cash payment limit would be "a very useful measure that will help address a money-laundering risk to the economy".
"It is about targeting the money-laundering risk associated with cash," AUSTRAC's general counsel Kathryn Haigh said.
While current law does state that if a bank customer deposits physical currency of $10,000 or more the financial institution has to report it to AUSTRAC, she said the authority did not currently regulate transactions by high-value dealers.
"If someone is purchasing or selling a high value good — such as jewellery, art, antiques and luxury cars — that would not be something that they would be required, by using cash, to report to AUSTRAC," Ms Haigh said.
The Uniting Church's Mark Zirnsak told the Senate hearing that his organisation was supportive of the cash bill, with a number of countries overseas already successfully implementing cash limits.
He said the proposed law change would deter real estate agents and high-value cash dealers from accepting dirty money for big purchases such as houses and jewellery.
He said "former employees in the real estate area" the organisation had spoken to had alleged some firms sent people to China "in order to encourage clients in China to invest in properties here in Australia, no questions asked".
"Sometimes they would suspect the source of the money was not legitimate," Mr Zirnsak said.
"They would accept very large cash transactions from Chinese clients to purchase properties here in Australia, and there is no requirement for a real estate agent to report any suspicious transactions."
If the law is passed, he said the Government should provide assistance to people with mental health issues and older people who have may difficulty accessing the financial system.
Law Council fears 'unintended consequences'
But the Law Council of Australia's Andrew Ham told the Senate hearing the proposed law could result in "unintended consequences".
The law establishes a criminal offence of strict liability for anyone who gives or receives a cash payment that equals or exceeds the cash payment limit of $10,000.
"In retail and wholesale businesses, they would be the people who are dealing with customers," Mr Ham said.
"Many of those people are minimally paid, minimally trained and minimally engaged with their workplace. They might be casual or part-time and they might be 16 years old.
"Under this bill, all that has to happen is that someone … wants to give them [the retailer] $10,000 to pay for something … and that person [the retail worker] is potentially heading to jail. That disturbs me greatly."
Also opposing the proposed law was the Australian Taxpayers Alliance's executive director Brian Marlow.
Mr Marlow, who is also the director of Legalise Vaping Australia, told the hearing he had heard from vape shops (selling electronic cigarettes), adult shops and people in the sex industry who were worried about the bill passing because they were reliant on cash payments as some banks would not work with them.
"The feedback I've had from vape shop owners is that even smaller banks are now not working with them," Mr Marlow said.
"In Victoria, I know that legal sex work operations found that they weren't able to trade with certain banking providers and things like that," he said, adding he did not have specific examples but would take it on notice and send that to the committee.
The Senate inquiry into the proposed law is due to hand down its report by February 7, but there will be further public hearings before then.