What is the cost of making physical money in Australia and how long can hard currency last?
Obituaries for the humble five-cent piece have been written for years. Back in 2011, the Royal Australian Mint in Canberra reckoned that “the five-cent coin should be scrapped because it is too expensive to make and a nuisance”. A Mint spokesperson also predicted its demise because of the growth in electronic transactions and moves towards a cashless society.
At a Senate hearing in 2014, the Mint’s chief executive, Ross MacDiarmid, questioned the need for the coin, explaining that it cost more than six cents to produce it – more than 20 per cent above its face value. Over 58 million five-cent coins were in 2014. A decade ago that number was 145 million.
And in February this year, Assistant Minister to the Treasurer Alex Hawke, said that “We can foresee a time in the near future where [the five cent coin] will be removed from circulation. The inevitable forces on that are at work.”
The question is how long can our coins, let alone physical cash in general, last? In 2012, it cost the US double the price of a penny (worth one cent) and a nickel (five cents) to produce each. Setting aside the costs to coin-accepting industries, on this simple calculation, it would be cheaper to close the US mints and produce nothing. Are we getting to the same point here? As contactless payments rise and we use more and more electronic methods of payment, what price are we willing to pay to hold on to our cash?
According to a 2014 report by Australian Payments Clearing Association (APCA), the use of cash has decreased consistently. Taken as a proportion of overall payments, the use of cash fell from 69 per cent in 2007
to 47 per cent in 2013.
With less cash being used, you would think fewer coins and notes would need to be minted and printed? In fact, the opposite is true. The paradox is that as we use less cash, more and more is swirling around. The report states that last year, the Mint – staffed by almost 200 people in two large buildings five minutes from Parliament House – struck 178 million coins while Note Printing Australia (NPA), a subsidiary of the Reserve Bank that produces our paper money, printed an extra 166 million banknotes.
Those extra notes equate to a rise of 8 per cent in the value of banknotes in circulation, with the value of $100 notes increasing by 11 per cent. As the APCA report says, today “there are 11 $100 denomination banknotes on issue for each man, woman and child in Australia, whereas the majority of the public do not use or hold this denomination (and very few ATMs dispense it)”.
All that new money doesn’t come cheap. The cost to the RBA of NPA supplying the banknotes was more than $55 million. While the number of circulating coins “purchased” by the government in 2014-2015 was the second lowest on record, the order of new coins still cost more than $106 million.
Even with the cashless revolution gathering pace, the Mint and the Reserve Bank don’t expect to be closing their money-making operations any time soon. “The Mint works closely with the banks to determine their forecast needs and production is made to that forecast,” says MacDiarmid. “There may be no need (to keep striking new coins) in the very distant future but we are still seeing a need for it currently i.e. the next 10 years.”
The question is, as cash use declines, where is all this money going? APCA’s “educated guess” is that of the total $60 billion in physical money in circulation, $25 billion is being hoarded in Australia and offshore; $10 billion is tied up in the black economy and illicit activities, and consumers holding a little more than $7 billion for normal expenditures. Australian and overseas ATM, bank branch, foreign exchange and retail and non-metal trade holdings make up the rest.
Even though we’re tapping and swiping and paying online more than ever, as long as we keep filling our jars with small change and stuffing savings under the mattress, we’ll continue to spend millions bankrolling our habit for cash.
This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY.
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