High-denomination Banknotes in Circulation: A Cross-country Analysis

The Reserve Bank of Australia’s (RBA) March 2018 Bulletin tries to understand growing demand for high-denomination banknotes in Australia, Canada and the United Kingdom. Indeed, demand for these countries’ currencies has been growing overall, but have reached a 50-year peak for the highest denominations: the AUD 100, CAD 100 and the GBP 50.

RBA’s research tackles various hypotheses including the correlation between financial uncertainty and the hoarding of cash, overseas demand for foreign currency as well as the effect of government and central bank policies on withdrawals of high denominations.

There are indeed other variables that could come into play such as the grey economy. Nevertheless, given the limited data on the subject, it was not be taken into consideration in the report.

The study found that demand for high-denominations is greatly linked to three major points:

• Growing overseas demand for these currencies, specifically in Asia. “For example, in the five years to 2016 it is estimated that 80 per cent of foreign shipments of CAD 100 banknotes were destined for Hong Kong, compared with 60 per cent in the previous five years.”
• Store-of-value is another factor. Consumers seem to rush to cash particularly during times of financial turmoil or low interest rates. “Around 70 per cent of participants in the RBA’s 2016 Consumer Payments Survey reported holding cash outside their wallets.”
• Change in government and central bank policies have also proven to have an impact on demand for high-denominations. For example, in the UK GBP 50 were mostly accessible at London ATMs, but rarely beyond. Now that a number of ATM operators have calibrated their machines to dispense these notes, demand has risen.

To read the full RBA March 2018 Bulletin, please click here.