Will Australia abolish the $100 bill?

The 100 Australian dollar banknote may be the next victim in the global war on cash. Australian Finance Minister Kelly O'Dwyer said on ABC Radio on Wednesday that the government wants to examine the extent to which the $100 banknotes are used to evade taxes. A new commission of inquiry led by former KPMG CEO Michael Andrew has already been set up to investigate how best to tackle the black economy. The black economy in the country represents an estimated 1.5% of the country's GDP.

Kelly O'Dwyer says in the radio program that taxpayers and public institutions such as schools and hospitals are disadvantaged by the black economy. But that's not to say that all cash is suspect. There are also legitimate reasons to keep your savings in cash, for example if you value your privacy or if you don't want to entrust your savings to banks.

Withdrawing banknotes from circulation

There are three times as many $100 bills in Australia as there are $5 bills. However, the largest banknote is rarely used in everyday payments. Of the total value of all bills in circulation, more than 90% is made up of $100 and $50 Australian dollar bills. According to O'Dwyer, this is suspicious, as there are plenty of ways to pay and save electronically. Nevertheless, she wants to wait for the results of the committee of inquiry before making any statements about the abolition of the largest banknote. "There's nothing wrong with cash per se, the problem is if people don't declare it and if they don't pay taxes on it", O'Dwyer said.

Not everyone is happy about the scrapping of the largest banknote. According to Australian Senator David Leyonhjelm, the government is particularly concerned about the large amount of cash, because it would like to spend more taxpayers' money. According to him, the black economy can be combated much more effectively by reducing the tax burden. "The motivation for a cash economy would be a lot less if taxes were lower. It's a response to the amount of taxes we pay.", the senator said.

Financial repression

Globally, the use and possession of cash is increasingly restricted. Governments want to bring in more tax revenue and are therefore taking more and more measures to map money flows and assets. With an increasing tax burden and declining trust in governments and banks, there is an increasing temptation to use cash and keep it outside the financial system.

A few days after banning the 500 and 1,000 rupee banknotes in India, the Swiss bank UBS came out with a report on the abolish of Australian $50 and $100 banknotes. The fact that the Australian government is now setting up a commission to investigate the use of cash seems to be just a formality towards the abolition of the largest banknote. 

100 Australian dollar bill (Source: Reserve Bank of Australia)