Andrew Leigh

How Many Kermits are in Your Wallet Now?

Business Insider, 19 February 2018

Do you have $3000 in your wallet right now?

Funny, because according to the Reserve Bank of Australia, that’s the average amount of cash on issue. So if you’re carrying less than $3000, someone else is carrying more.

Something else is funny about our money. If you’re like me, you haven’t seen many $100 notes lately. And yet nearly half of the value of all cash in Australia is in the big green notes affectionately known as ‘Kermits’. The Reserve Bank of Australia says that the number of Kermits has almost doubled in the past decade.

So who is taking all the cash?

United States economist Kenneth Rogoff, author of the book The Curse of Cash, has an answer – and it isn’t particularly pleasant.

According to Rogoff, tax evaders, human traffickers and drug runners are the main sources of demand for hard currency. So when we think about cash, we have to remember not only the convenience that it brings to law-abiding citizens, but also the benefits that it conveys to wrongdoers.

Watch the news closely, and you’ll see that seizures of guns or drugs often also result in a large cash haul. One police drug raid in Sydney seized $1.2 million in cash. A Melbourne drug raid saw $2.7 million seized.

If you’re a fan of gangster flicks, you’ll be familiar with wrongdoers’ love for big notes. A million dollars in $100 notes weighs about 10 kilograms, enough for one person to carry comfortably. But a million dollars in $10 notes would weigh in at 840 kilograms: about the weight of a Smart Car. Little wonder, then, that law enforcement agencies are particularly focused on currencies with large denomination notes, such as the Euro (€500), the Bank of Scotland (£100), the Swiss franc (CHF1000) and the US dollar ($100).

Responding to these concerns, the European Central Bank announced that it would cease production of the €500 note, explicitly noting concerns about their use in illicit activity. Britain bans its foreign exchange providers from distributing €500 bills.

Several countries are now deliberately trying to reduce the role of cash in their economies, including France, the Netherlands and Singapore. Most radically, Sweden has seen the share of cash transactions halve over recent years. Plenty of Swedish street vendors accept cards, and many Swedish stores do not accept cash.

If we are looking at phasing down our use of cash, we will need to address two big issues. First, electronic transfers will need to clear immediately. Second, we must ensure the most disadvantaged are not left behind. On the transfer side, technological innovations such as cryptocurrencies already exist, but in practice it can still take days for an inter-bank transfer to clear.

Some commentators believe that we can move speedily. University of New South Wales economist Richard Holden argues that the imminent New Payments Platform would be the ideal building block to abolish the $100 note. 

On the equity side, we are still a long way from doing enough to assist the unbanked, but there are modest moves afoot. For example, some European countries offer free debit accounts to low-income people, and in Australia some credit unions and banks offer no-cost debit accounts and allow basic transactions at post offices.

Australia is many years from phasing out cash, but it’s worth beginning the conversation now. Most cash in circulation is probably being used for nefarious purposes, but we need better policies to protect the unbanked before we can imagine saying goodbye to those Kermits.