Should we scrap the $100 note?
IS IT time to get rid of the $100 note?
Investment bank UBS thinks so. With India this week moving to demonetise its two highest denomination bank notes, UBS says Australia should follow the lead.
India’s prime minister Narendra Modi said the decision was aimed at curbing the use of fake money and corruption. While no longer legal tender, people can still deposit the Rs1000 and Rs500 notes into bank accounts until December 30.
India plans to release new Rs500 and Rs2000 notes, but no date has been set.
In a research note on Monday, UBS said it would be a positive for the banks due to the rapid growth in deposits, the boost to digital and cashless payments, and the reduced reliance on branch networks over time.
And in a country where only 1 per cent of people pay tax, the move in India is expected to “lead to lower interest rates and could uncover large amounts of taxable income currently hidden in the cash economy”, UBS analysts said.
While concerns with the cash economy in Australia may not be as significant as in India, UBS makes the following points. Firstly, there are 300 million $100 notes in circulation, although they are “rarely seen”. Second, there are almost three times as many $100 notes than $5 notes by number in circulation. And thirdly, 92 per cent of all currency by value is in $50 and $100 notes.
“Given the increasing level of digital transaction penetration we believe Australia could move to remove larger denomination notes,” UBS said.
“RBA data suggests the use of cash for transactions continues to fall. Since 2009 ATM transactions are falling at 3.4 per cent per annum while credit card transactions are growing at 7.3 per cent per annum driven by tap-and-go and NFC technology.
“We believe removing large denomination notes in Australia would be good for the economy and good for the banks.”
According to UBS, benefits may include “reduced crime (difficult to monetise), increased tax revenue (fewer cash transactions) and reduced welfare fraud (claiming welfare while earning or hoarding cash)”.
“From the banks’ perspective there would likely be a spike in deposits — if all the $100 notes were deposited into banks (ignoring hoarded $50s), household deposits would rise around 4 per cent. This would likely fill the banks’ Net Stable Funding Ratio (NSFR) gap and reduce reliance on offshore funding.”
It comes after Prime Minister Malcolm Turnbull said he was open to scrapping the 5c coin, after Treasurer Scott Morrison was earlier this year grilled by news.com.au’s Malcolm Farr on why we still make the little silver piece.
Originally published as Should we scrap the $100 note?