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.
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.