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Highlights
- While tap-and-go payments have become the norm during pandemic, cash in circulation has continued to surge as well.
- The banknotes in circulation have jumped 20% between February 2020 and October 2021.
- As per the RBA, cash is increasingly being used as a store of wealth.
Cash in circulation has surged in Australia despite tap-and-go becoming the most preferred payments method during the COVID-19 pandemic. However, there is a problem. Despite record number of banknotes circulating in the economy, most are probably stuffed in mattresses.
While people are withdrawing large sums of money from ATMs, they are hoarding them rather than spending. 'Cash is increasingly used as a store of wealth,' the RBA said in its latest research paper.
According to the latest data, the value of banknotes in circulation has jumped ever since the first coronavirus case was detected, rising by 20% between February 2020 and October 2021.
Even as cash hoarding was prevalent before COVID-19 too, the phenomenon is still continuing. Before COVID-19 hit Australia, there were nearly AU$80 billion notes circulating in Australia. The number rose to AU$100 billion with a year, implying a 25% jump.
Since COVID-19, high denomination banknotes are more likely to be circulating with 73% of them being AU$50 and AU$100 notes.
Source: © Kiosea39 | Megapixl.com
Why are Australians hoarding cash?
According to the RBA, the rise in cash storage is largely on account of the pandemic, which has increased uncertainty among people, especially the elderly. They are more comfortable storing money physically than leaving it in the bank, something historically seen during a crisis.
Such a scenario is particularly prevalent during a crisis. It was also seen during the financial crisis in 2008. 'The store-of-wealth function performed by banknotes is particularly important during times of financial and economic uncertainty, such as the Global Financial Crisis and the Covid-19 pandemic,' RBA said.
The other reason may be the record low interest rates. People don’t lose much in terms of interest rates offered by the banks when they hoard money at homes. The cash rate remains at a record low of 0.1%.
Meanwhile, a survey commissioned by the RBA in 2020 showed that 56% of respondents had stored cash outside a bank. The figure is 40% higher than what it was a year earlier.
As per the same survey, 44% used less cash since the start of the coronavirus pandemic, as against 12% using more. Nearly 66% said their shift in behaviour may continue after life returns to normal post pandemic.
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