China driving bank $100 bill demand

Demand for the Reserv­e Bank’s $100 bills has never been stronger, with much of it coming from China.

People may be switching from cash to cards for their daily purchases, but demand for the Reserv­e Bank’s $100 bills has never been stronger, with much of it coming from China.

The number of $100 notes in circulation soared 9 per cent last year while demand for $50 notes was also strong, rising 6 per cent.

“This growth in high-denom­in­ation banknotes is well above recent growth in nominal ­income for the economy,” said the Reserve Bank’s annual ­report, released yesterday.

The bank said the demand for high-denomination banknotes was partly being driven from offshore, with purchases rising whenever the Australian dollar exchange rate fell.

“High-denomination banknotes are also used as a store of wealth, especially in times of ­financial uncertainty and low ­interest rates,” the report says.

It is understood that many of these offshore purchases of Australian dollars are coming from China. The notes are often returned at a later date still in their original plastic wrappers.

The Reserve Bank has 1.4 billion banknotes in circulation, worth a total of $70.2 billion, a 7 per cent increase over the year.

The Reserve Bank, which makes money from the issue of banknotes, made a $2.9bn profit last year. This was down from the bumper $6.9bn profit made the year before, when the fall in the Australian dollar was pushing up the value of the bank’s reserves of foreign exchange.

However, the bank was able to raise its dividend to the ­government from $2.5bn to $3.2bn, with the payment to the government drawn from its ­reserve fund, which grew by $4.6bn last year.

The May budget was only counting on a small lift in divid­end receipts this year, so the boost from the Reserve Bank will be welcome.

The budget is also being helped by the rally in commodity prices, with a report by the Commonwealth Bank yesterday calculating that if the prices were sustained for a full year it would lift the terms of trade by 15 per cent by June next year.

The budget was counting on an average lift of only 1.25 per cent over the year.

Iron ore prices are in line with Treasury’s budget forecasts, while coal prices are significantly higher.

In his final statement as ­Reserve Bank governor, Glenn Stevens wrote in the annual report that Australia’s growth outlook was “reasonable” although inflation would remain low.

He said the economy could sustain better growth than the Reserve Bank forecast, but indic­ated this could not be achieved by further rate cuts.

“The challenge of securing faster growth on a durable basis, without a further step-up in priv­ate-sector leverage, is one that will not be met by monetary ­policy alone,” he said, implying that structural reform from the government would be needed.

The Reserve Bank boosted its reserves last year by selling $10bn in foreign exchange that had been bought when the Australian dollar was much higher.

The annual report reveals that both Mr Stevens and his then deputy, Philip Lowe, had a 2 per cent pay rise last year, raising the governor’s salary to $1.03 million and the deputy’s salary to $771,120.