Keeping up with Cash Payments Poses Significant Challenges: Reserve Bank of Australia

The Reserve Bank of Australia (RBA) disclosed that maintaining a stable cash distribution in Australia poses a significant challenge at present.

During a recent parliamentary inquiry, RBA governor Michele Bullock emphasized the bank’s commitment to supporting cash despite its diminishing role in the economy.

She stated, “Cash usage for everyday transactions has declined over the years, but it still holds importance for many Australians as a payment method. The RBA is dedicated to upholding the Australian government’s goal of ensuring cash remains a viable payment option for as long as needed.”

However, Bullock noted the lack of awareness among consumers and businesses about the high costs associated with maintaining cash payments within the system amidst a sharp decrease in cash usage.

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“The only cost consumers face with cash is ATM withdrawal fees, which cover the expenses of handling and refilling ATMs with cash,” Bullock explained.

“This is the primary cost associated with cash usage. However, many people are unaware of the overall costs involved.”

Additionally, only 7% of respondents, equivalent to approximately 1.5 million Australian adults, primarily use cash for over 80% of their in-person transactions.

Despite the decline in cash usage, those still using cash do so frequently, as indicated by ATM withdrawals and point-of-sale cash transactions.

Cash Transactions Are Expensive

Bullock referenced a study by MasterCard that revealed it costs merchants more to handle cash transactions compared to card payments, despite no surcharges on cash payments.

“The expenses of counting, depositing, and securing cash, especially for businesses without nearby bank branches, along with theft costs, make cash transactions costly,” she stated.

The governor also expressed concerns about the rising expenses of cash distribution.

“Storing, processing, and distributing cash across the country has become more expensive,” she added.

“Presently, a single company, Linofox Armaguard, provides these services and is facing financial challenges due to insufficient revenues to cover its costs.”

In October 2023, Armaguard sought assistance from major banks and financial institutions to avoid insolvency.

RBA Faces Long-term Cash Distribution Dilemma

Although the support package may assist Armaguard with its immediate financial troubles, Bullock highlighted the need for regulators to consider long-term solutions.

“We anticipate that cash will remain in circulation for at least another decade, and we must devise a sustainable system for cash distribution,” she emphasized.

“There are various options to consider, but the bottom line is that someone will bear the cost of cash distribution.

“If consumers are not charged, then another entity will have to bear the expense, and determining how to subsidize this remains a challenge.”

The governor pointed out that proposing consumer fees for cash usage would not be well-received, emphasizing the necessity for cross-subsidization to make cash transactions feasible for consumers.

However, the RBA has not yet developed a solution to address this issue.

“Where will this cross-subsidization come from? Will banks need to take on this responsibility and offer cash services to customers, subsidizing the costs? How will this be implemented?” she questioned.

“We are currently without a solution.”