RBA reveals where the money goes: drugs and behind the couch

More than $1bn of local banknotes are used to purchase drugs, while up to $8bn has fallen behind the collective couch.

Cash seized by NSW Police.

More than $1 billion worth of Australian banknotes in circulation are being used for drug trafficking, according to a landmark study about where the nation’s cash goes.

At the same time as much as $8bn, or roughly 10 per cent of all banknotes on issue, have fallen behind the couch, considered lost, destroyed, or are sitting in private collections. To put this in perspective, this corresponds to around $170 to $340 for every Australian.

The Reserve Bank has been puzzled by the demand for cash, with the value of banknotes on issue near the highest level in 50 years, relative to the size of the economy, at a time when using cash to settle transactions is falling rapidly. The study shows ­between 50 and 75 per cent of all banknotes are hoarded both in Australia and overseas, either to store wealth or to conceal profits.

“Ongoing growth has occurred despite an observable shift away from cash as a means of payment, a phenomenon observed in many countries,” the RBA researchers said.

Currently there are approximately $76bn worth of Australian banknotes in circulation. That amount equates to about $3,000 per Australian being held.

Of that figure the vast majority — 93 per cent as at June 2018 — is accounted for by the $50 and $100 notes, split roughly evenly between the two.

By contrast, $5 banknotes represent just 1 per cent of outstanding value of notes on issue, $10 banknotes represent 2 per cent, and $20 banknotes represent 4 per cent.

Meanwhile the bulk of lost bank notes are the $5 or $10 note with the RBA researchers noting “people are likely to show greater care towards banknotes of greater value”.

Cash found after the Australian Federal Police smashed a massive fraud syndicate. Picture: AFP

RBA economists ­developed new estimates for the use of cash for drug trafficking, making allowances for the ­impurity of street sales and Australian Criminal Intelligence Commission estimates of prices.

It concluded annual spending on illegal drugs is about $8.5bn which, allowing for the re-use of banknotes, would require about $1bn in cash. Drug traffickers hold an additional $1bn as a cash hoard, with the estimate based on the cash seized during Australian Federal Police busts.

A further $2.5bn to $4bn in cash is used in the “shadow” economy to conceal profits and earnings from tax authorities.

The RBA estimated the banknotes used for the majority of illegal drug transactions are for methamphetamine and cannabis.

Cash payments Per cent of consumer payments

“Drug users and dealers are unlikely to use conventional electronic payment methods for fear of leaving a traceable record; purchases made with coins are likely to represent a small fraction of total expenditure; and while anecdotal reports suggest that an increasing number of illicit drug purchases are made online using digital currencies such as bitcoin … most drug users still purchase their drugs face-to-face,” the RBA researchers said.

Of total outstanding banknotes half to three-quarters are hoarded as a store of wealth or for other purposes.

The RBA also looks at insurance claims for banknotes lost in house fires to estimate domestic hoarding while international hoarding is calculated by comparing wholesale shipments of currency overseas and subtracting the amount spent by tourists.

Of this breakdown, the RBA estimates up to 20 per cent is for to domestic hoarding, and up to 15 percent is held offshore.

The banknote loss estimate is based partly on the $810 million of old paper notes that have not been redeemed 20 years after the introduction of polymer notes.

-with David Uren