Modi’s currency ban finds support in Australia
Melbourne, Nov 18 (IANS) While Indian Prime Minister Narendra Modi is facing flak from some quarters for scrapping Rs 1,000 and Rs 500 notes, an Australian analyst has called for similar bans on bigger denomination currency notes Down Under too.
The call for the ban on $100 and even $50 currency notes has been accompanied by laudatory comments for Modi’s bold move.
Citing Modi’s crackdown, a UBS analyst Jonathan Mott has taken lead in pressing for similar demonetisation measures in Australia.
“Removing large denomination notes in Australia would be good for the economy and good for the banks,” Jonathan Mott said in a communication to UBS clients earlier this week. Benefits would include reduced crime and welfare fraud, increased tax revenue and a “spike” in bank deposits, he said.
While the percentage of the banned notes in India is around 80 percent, 92 per cent of all currency in Australia is the value of $50 and $100 (US$76).
“Only Switzerland, Israel, Norway and Russia use big notes more than we do,” The Age economics editor Peter Martin had despaired while urging a ban on big notes in an article published a few months back.
“Who’s got them? They are mainly in the hands of drug lords, human traffickers, and tax evaders,” Martin had said, answering his own question while quoting from influential US economist Kenneth Rogoff’s recently released book “The Curse of Cash”.
Like The Age scribe, Mott believes that the scrapping of the biggest denomination currency notes would yield a plethora of economic benefits, including a reduction in crime, higher tax revenue from fewer cash transactions and lower rates of welfare fraud.
According to the UBS analyst, if all of $100 notes are deposited in banks, the household deposit would go up by 4 percent, reducing reliance on foreign funding.
Australia is not alone where Modi’s demonetisation announcement is being seen with interest. According to media reports, a number of central banks and governments around the world are looking at withdrawing high denomination bank notes.
The reasons for their interest could be slightly different from India and the UBS analyst. The digitalisation of the economy is cited as the major reason for which many countries may either completely ban the bigger denomination notes or significantly reduce their number.
Like many of its fellow OECD members, Australia is also experiencing the increasing penetration of electronic payment methods.
The ATM transactions in Australia have fallen 3.4 percent a year since 2009 while credit card transactions have increased 7.3 percent a year, a UBS research note reads.
Australian banks have already commenced dropping cash transactions from service offered to the customers. ‘No cash on Saturday’ signs can be seen in a number of bank branches open for business on the weekends.
In a separate but related development, Citibank Australia has decided to remove cash from its branches. The US bank may have just six branches in Australia but its move has attracted the attention of financial analysts the world over. Removing cash from bank branches is seen as a move towards digital banking.
The demand for cash handling services (including ATM withdrawals) is on a decline in Australia. In Citibank’s case, the decline was even more pronounced as only one in 20 customers entered one of its six branches for cash management.
The European Central Bank is also reportedly considering withdrawing 500 euro notes because of an “increased conviction in world public opinion” such high-value notes are used for criminal purposes.
(Paritosh Parasher is a senior journalist of Indian origin. He can be contacted at firstname.lastname@example.org)