Australia Should Scrap Big-Denomination Bank Notes, UBS SaysBy
Move would boost bank deposits, cut offshore funding reliance
India banned 500, 1,000-rupee notes currently in circulation
Australia should follow India’s lead and scrap its biggest bank notes, UBS Group AG said.
“Removing large denomination notes in Australia would be good for the economy and good for the banks,” UBS analysts led by Jonathan Mott said in a note to clients on Monday. Benefits would include reduced crime and welfare fraud, increased tax revenue and a “spike” in bank deposits, he said.
The report came after India last week banned its existing 500-rupee ($7.40) and 1,000-rupee notes as part of a crackdown on tax evasion and the black economy that the government hopes will force people to declare unaccounted income and boost tax coffers. The government is issuing newly designed 500-rupee and 2,000-rupee bills with additional security features to deter counterfeiters.
In Australia, 92 percent of all currency by value is in A$50 ($38) and A$100 notes, the larger of which is “rarely seen,” according to the UBS report. Removing bigger denominations would boost digital payments in a country where the use of cash payments is continuing to fall, the analysts wrote.
Since 2009, ATM transactions in Australia have fallen 3.4 percent a year, while credit-card transactions have increased 7.3 percent a year, UBS said.
The program would also be positive for banks. If all the A$100 notes were deposited into accounts at the lenders, household deposits would rise by about 4 percent, the UBS analysts said. That would likely be enough to fill the big banks’ regulatory-mandated net stable funding ratios and reduce reliance on offshore funding, they said.
The European Central Bank in February said it was considering withdrawing 500-euro notes because of an “increased conviction in world public opinion” such high-value notes are used for criminal purposes.