Money mystery: where is world’s cash going?

Some Australians are burying it. The Swiss might be hiding it. The Germans are probably hoarding. Where is the world’s cash?

Philip Lowe with Liberal MP Tim Wilson and some newly printed cash

Some Australians are burying it. The Swiss might be hiding it. The Germans are probably hoarding.

Banks are issuing more notes than ever and yet they seem to be disappearing off the face of the earth. Central banks don’t know where they have gone, or why, and are playing detective, trying to crack the same mystery.

The puzzle is especially perplexing since societies and companies are going cashless, given the boom in payments by cards and mobile phone apps.

The value of US dollars in circulation hit about $US1.7 trillion ($2.46 trillion) last year ($US12.4bn of it in dollar bills; $US1.3 trillion of it in hundred dollar bills) according to the US Federal Reserve. That is up from $US1.2 trillion in 2013.

A Federal Reserve economist, Ruth Judson, wrote in a 2017 paper that about 60 per cent of all US currency, and about 75 per cent of $US100 bills, had left the country by the end of 2016 — for a total of about $US900bn in greenbacks kept overseas. Socking those bills away provided some protection against economic turmoil, especially in countries with a record of instability in their own financial systems, the paper said.

In Australia, the stock of bank notes on issue relative to the size of the economy is near the highest it has been in 50 years, said Philip Lowe, governor of Australia’s central bank. He showed off newly printed bank notes to diners at a recent event in Melbourne and estimated that about $2000 in printed bills existed for every Australian.

“I, for one, don’t have anywhere near that amount” on hand, Dr Lowe said.

Following the money trail can often mean encountering a motley cast of characters that would not look out of place in a detective novel. Dollar bills are often vital grease for criminal gangs and tax cheats. They are also popular with collectors who worry about a ­future collapse of the financial system.

Bankers aren’t just hunting down cash to satisfy their own curiosity. If central banks don’t know how much cash is out there, they could print too much currency and risk inflation.

Construction workers recently dug up an estimated $140,000 buried in packages at a site on the Gold Coast, prompting a police search to find the trove’s owner.

In September, a court in Germany ruled on a case brought by a man who stuffed more than €500,000 in a faulty boiler only to see it incinerated when a friend made a fix on a cold day while he was on holiday. The man sued his friend for the value of the lost bank notes plus interest. He lost.

“People hide their money everywhere,” said Sven Bertelmann, head of the Bundesbank’s National Analysis Centre in Mainz. Sometimes bank notes are buried in the garden, where they start decomposing, or hidden in attics, where they are used by mice for building nests.

“It happens again and again that people keep money in an envelope and then they shred it by mistake,” Mr Bertelmann said.

The Bundesbank thinks more than €150bn ($240bn) are being hoarded in Germany.

The Reserve Bank of Australia’s Note Issue Department decided to take an unusual approach: could fire-damaged bank notes help to determine how much money is being hoarded? Analysts even devised an equation based on the value of claims submitted by households for new bank notes to replace those that had been damaged by fires.

It didn’t work.

“Our estimates are only reliable if our assumptions are reasonable, which we believe is probably not the case,” lamented analysts at the RBA.

For one thing, they found wealthier people were less likely to suffer a fire because they lived in cities near emergency services and had working fire alarms. That skewed results towards rural farmhouses built with wood.

The European Central Bank, and others, tried asking the public for help.

“Everyone says that they are not hoarding cash but the money is clearly somewhere,” said Henk Esselink, head of the issue and circulation section in the ECB’s currency management division.

The RBA says its best guess is that only about a quarter of the bank notes in circulation are used for everyday transactions. Up to 8 per cent of cash is used in the shadow economy — tax avoidance or illegal payments — while as much as 10 per cent could have been lost. That is $7.6bn missing at the beach or in couch cushions.

The biggest use of cash is as a store of wealth “in safes, under beds and at the back of cupboards, both here in Australia and elsewhere around the world,” Dr Lowe, the RBA governor, said.

Christian Hawkesby of the Reserve Bank of New Zealand

About a third of New Zealand’s new bank notes headed overseas in 2017, up from 6 per cent four years earlier. That happened around the time that tourism overtook dairy as the country’s main export money-spinner, leading officials to speculate on the role played by currency exchanges, especially in Asia.

The trail mostly ran cold after that. The bank could only identify the whereabouts of about 25 per cent of New Zealand’s cash.

“Our sense is that we’re in the same boat as a lot of other central banks out there,” RBNZ assistant governor Christian Hawkesby said.

“We can’t fully explain why holdings of cash are rising and where they are going.”