It costs a lot for the Australian Government to print and distribute notes and coins. Australian notes are managed by the Reserve Bank of Australia (RBA), and coins by the Royal Australian Mint.
There are now about 1.6 billion Australian banknotes in circulation, worth about AUD$80 billion. Most of the value is in $100 notes. But who has them and where are they? The RBA estimates that more than 50% of notes are “hoarded stock”, i.e. people keeping them as a store of value, which makes sense in a low interest rate market: why put cash in the bank if you get no interest and can pay anonymously and potentially tax free? Not that I’m condoning this, but everybody has heard “It costs less if you pay cash”. Another possible explanation is that criminals are transacting suitcases of $100 for drugs, bribes, and other “unseemly” things, in Prince Andrew parlance.
The RBA also notes that while consumers have been increasingly using electronic payment alternatives in preference to cash, the value of banknotes in circulation, measured as a per cent of nominal GDP, remains close to historical highs at around 4 per cent. Interesting. What would happen if the Australian Government started to issue “official” AUD digital notes and/or coins?
Examples
There are about a dozen countries globally that are at various stages of issuing national or regional cryptocurrencies: Anguilla, Antigua and Barbuda, China, Dominica, Grenada, Ireland, Lithuania, Marshall Islands, Montserrat, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Venezuela. I guess most of them fall into the “easily ignored” category. Then’s there’s China. CHINA. Ireland is sort of like Australia, so makes you think “maybe we should consider it”.
Here are some reasons to think about it:
- Reduce the cost of notes and coins. I’m not suggesting that we could replace physical cash overnight, or even within one generation, but each note or coin we make digital reduces the cost of manufacturing, distribution, destruction.
- Increase transparency and traceability. Some cryptocurrencies are anonymous by design. Most, including BTC, aren’t really anonymous at all, even though this is a common belief. Every BTC transaction is effectively public domain, and we can tell which transactions have occurred between which wallets, and how much value is in each wallet, by inspecting the blockchain. You can’t necessarily tell who owns each BTC wallet. But this doesn’t have to be the case with an official AUD currency wallet. We could have full Know Your Customer (KYC) for every AUD wallet created. This would help tax collection and to prevent and detect money laundering and terrorist financing.
- Provide a store of value. If official interest rates become zero or negative then holding AUD as a crypto-asset is in many ways safer than physical notes which can be destroyed, lost or stolen.
- Pave the way to a digital economy. Australians will turn their creativity and inventiveness to future-facing scenarios, which might help us to export technologies and services to other countries. For example, Note Printing Australia has exported the polymer note technology to several other countries. This was originally developed by CSIRO to counter forgeries with paper notes. What is the crypto equivalent of the polymer note?
- Remaining relevant, and defending against erosion of the AUD. What would happen if it became easier to use a foreign currency on Australian soil than AUD? The Government would find it hard to raise taxes and fund its public service workforce. Is this possible? What if Libra, Facebook’s cryptocurrency initiative, took off and we were all spending Libra in shops on our Facebook phone apps? Could the government easily collect GST?
Rod Tasker,
Non Executive Director
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