The possibility that a taskforce on Australia’s informal economy will recommend the withdrawal of the 100 Australian dollar bill is having unforeseen consequences for Australian travellers in India, where the notes are being refused by merchants and money changers.
India’s cash economy is in chaos following Prime Minister Narendra Modi’s surprise decision on Nov. 8 to withdraw all 500 rupee and 1,000 rupee notes from circulation immediately, in a crackdown on hoarders of untaxed and unregistered cash.
Spooked by New Delhi’s dramatic move, which affects 86% of Indian cash in circulation, Indian traders are taking no chances, forcing the Australian government to update its travel advice for India on Jan. 5 with a warning that Australian tourists should carry euros or dollars rather than rely on Australian dollar notes.
The Indian scare follows a push by the Australian government, led by Liberal Party Prime Minister Malcolm Turnbull, to raise billions of dollars in additional revenues by taxing illicit and undeclared cash payments.
In December, Financial Services Minister Kelly O’Dwyer appointed a taskforce to look into the so-called “black” economy, which could amount to as much as A$24 billion, equal to 1.5% of gross domestic product, according to the Australian Bureau of Statistics.
The taskforce, under the direction of Michael Andrew, a former global chairman of KPMG, the accounting and business services firm, will recommend later this year whether the A$100 bill should be scrapped, and whether cash transactions exceeding a certain amount should be banned, among a range of other options.
“There’s nothing wrong with cash … the issue is when people don’t declare it,” O’Dwyer told ABC Radio in Australia last month. She added: “We know increasingly that people are using electronic payments, and yet there are about A$50 billion worth of A$100 notes in circulation.”
However, there has been some disquiet in Australian government circles regarding the possible demise of the A$100 bill. Liberal South Australian Senator Cory Bernardi took aim at the proposal, writing on his website: “We’ll probably have a war on cash, which is also a war on your privacy, as a means of raising revenue.”
According to the Reserve Bank of Australia, the central bank, there are more than 334 million A$100 notes in circulation in Australia; yet they are seldom encountered in everyday trade, and authorities suspect they may play a significant role in the so-called black economy.
Criminals and tax avoiders
Steve Worthington, an adjunct professor in management and marketing at Swinburne University of Technology in Melbourne, told the Nikkei Asian Review that there were three times as many A$100 notes in circulation as A$5 notes.
Worthington said the RBA printed and distributed paper currency according to demand from commercial banks, which was in turn driven by demand from their customers.
Yet the scarcity of the A$100 bills in ordinary Australian life raised questions about their uses.
“They may be in the hands of criminals who are holding them because they’re the highest denomination note in Australia at the moment, or they’re in the hands of people who are either being paid in cash, or who want to pay out in cash,” he said, adding that large cash payments have been used by tax evaders who want to dodge income tax or Australia’s indirect Goods and Services Tax.
“It’s the hidden economy,” Worthington added. “It’s so hidden, we don’t know how big it is. The A$100 notes give the hidden economy some oil; they help it to work.”
The concept of binning the A$100 note has received some finance sector support in Australia. A research note issued in November last year by UBS, an investment bank, also suggested eliminating the bill, saying it would encourage more rapid growth in deposits, boost digital and cashless payments, and reduce reliance on banks’ branch networks.
UBS said that other benefits could include a reduction in welfare fraud, increased tax revenues and a reduction in certain crimes that would become difficult to monetize.
However, the RBA has backed the A$100 bill, noting in a December report that it was “not possible to estimate the extent to which cash, or any particular banknote denomination, is used in illegal activities.”
The RBA instead targeted the A$50 note, saying that, “liaison with AUSTRAC (the Australian Transaction Reports and Analysis Centre) and the Australian Crime Commission suggests that it is the A$50 denomination — rather than the A$100 — that tends to be preferred by criminal elements because of its ubiquitous use in legitimate transactions.”
At the same time, other currency issuers have been eyeing their high denomination notes. The European Central Bank announced in 2016 that the 500 euro note, often known as the “Bin Laden” because of its links to money laundering and terrorism, will no longer be printed or distributed from next year, and some U.S. economists favor phasing out the $100 bill, again to combat crime.
Peter Sands, a senior fellow at Harvard’s Kennedy school in the U.S., co-wrote a paper last year that suggested eliminating a number of high denomination notes around the world. Sands argued for phasing out the 500 euro note, the $100 bill, the British 50 pound note and the Swiss 1,000 franc note.
“Such notes are the preferred payment mechanism of those pursuing illicit activities, given the anonymity and lack of transaction record they offer, and the relative ease with which they can be transported and moved,” the paper said. “By eliminating high denomination, high value notes we would make life harder for those pursuing tax evasion, financial crime, terrorist finance and corruption.”
Yet cash has its champions, as Worthington pointed out. “We live in uncertain economic times, and having a stash of cash is — in many people’s minds — a good fall-back, for a whole variety of reasons,” he said. “Cash is anonymous and accepted everywhere.”