A recent article published by the Reserve BankSee Central bank. More of Australia looks into cashMoney in physical form such as banknotes and coins. More demand and attempts to reconcile the apparent contradiction between two measures of cash demand:
- The first, cash in circulationThe value (or number of units) of the banknotes and coins in circulation within an economy. Cash in circulation is included in the M1 monetary aggregate and comprises only the banknotes and coins in circulation outside the Monetary Financial Institutions (MFI), as stated in the consolidated balance sheet of the MFIs, which means that the cash issued and held by the MFIs has been subtracted (“cash reserves”). Cash in circulation does not include the balance of the central bank’s own banknot... More, is increasing by 6% per annum.
- The second, cash payments – measured as the relative share of payments made in cash – has declined from over 70% in 2007 to 37% in 2017, according to the Consumer Payments Survey (CPS).
The report concludes that:
- Australian consumers are increasingly choosing to make payments with cards rather than cash.
- However, the value of consumer payments has not fallen as steeply as the share of the number of payments – two different measures.
- CPS data may be lacking information which overstates the decline in cash. Cash payments by business are not included; the shadow economy is not included and neither are tourists and overseas visitors. Evidence suggests tourists and overseas visitors are intensive cash users.
- The velocity of cash has slowed partly due to the prevalence of ATMs, eftpos devices, self serve checkouts etc. resulting in cash as a store of valueOne of the functions of money or more generally of any asset that can be saved and exchanged at a later time without loss of its purchasing power. See also Precautionary Holdings. More.
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