Since the coronavirus outbreak became a pandemic, the need for cash and banknotes in many countries, including Australia, has become non-existent.
To lessen the chances of infection, stores and cafes in Australia have demanded the use of contactless tap-and-go credit and debit cards instead of a banknote or change.
Reserve Bank of Australia Governor Philip Lowe, addressing a parliamentary committee on Friday, revealed that something odd is happening Down Under.
“While COVID-19 has accelerated the shift to electronic payments, there has, paradoxically, also been record demand for banknotes,” said Lowe.
“Some people seem to be wanting to keep some extra money at home. The result has been that the stock of banknotes on issue has increased from $83 billion in February to $94 billion today.”
That’s an increase of $11 billion in banknotes and it appears most of it is stashed away in a safe place in people’s houses as spending data backs up the increasing dependence on card transactions, with cash withdrawals halving at the start of the coronavirus pandemic.
The Reserve Bank of Australia believes a small group of people have withdrawn disproportionate amounts of cash “into the millions”.
What has caused this action to take cash from the banks and take it home to store?
The recession in Australia is a certainty. Lowe said that the Reserve Bank of Australia does “not yet have the GDP data for the June quarter, but it will show the biggest economic contraction in many decades, likely to be around 7%”.
With the number of unemployed Australians hitting one million in July and rising, Lowe noted that the jobless has “not been as bad as expected”.
“Hours worked were initially expected to fall by a staggering 20% over the first half of this year. The actual fall has been around half of this, largely due to Australia’s initial success in containing the virus and the earlier-than-expected easing of some restrictions,” said Lowe.
He maintained that easing unemployment should remain Australia’s number one priority. The RBA forecasts will sit at 10% going into next year and remain above 7% in the years to follow.
IFM economist Alex Joiner stated the government fiscal support needs to remain for the Reserve Bank of Australia’s forecast to come true.
#RBA’s Lowe suggests the unemployment rate will still be 7% in a few years time – it sounds bad but it would be the best labour market recovery of any modern day recession, this forecast is supported by the JobKeeper initiative – fiscal support will need to stay #ausbiz https://t.co/B6K4nyV8BA
— Alex Joiner (@IFM_Economist) August 14, 2020