Archive for the ‘Central Banks / Monetary Policy’ Category

Milton Friedman’s 1968 lecture and RBNZ adding employment to mandate: Monetary policy comes full circle in 2018..

May 17, 2018

Here is my recent Mint piece where I argue how the year 2018 is significant for two developments in monetary economics.  First is the 50th anniversary of much celebrated Milton Friedman’s lecture titled “The role of monetary policy”. Second is the Reserve Bank of NZ adding employment to its price stability mandate.

Both the events are obviously connected as I explain in the piece. How RBNZ adding employment to its price stability objective is against Friedman’s advice given in 1968. Friedman argued a central bank should only focus on price stability and leave other objectives to polity.  So just like life, monetary policy and central banking also keeps going in circles…


Reserve Bank of NZ becomes cooler: Explains monetary policy decision using cartoons!

May 11, 2018

There was fair bit of anticipation over the new RBNZ central bank chief- Adrian Orr. He was appointed amidst controversies as the previous Governor was appointed just for 6 months.

RBNZ has also been at  the forefront of pioneering practices in central banking like inflation targeting, increased transparency in communications and so on. Mr. Orr has not disappointed as he has upped the ante by explaining monetary policy using cartoons:

The official interest rate is expected to remain at 1.75 percent for a considerable period.

Global growth continues to support the New Zealand economy 

Global growth continues to support the New Zealand economy

Employment growth continues to be strong

Employment growth continues to be strong

Low import prices have kept inflation low

Low import prices have kept inflation low

Low interest rates will help support employment and raise inflation

Low interest rates will help support employment and raise inflation

We are monitoring a number of risks that could change the economic outlook and lead us to change interest rates

We are monitoring a number of risks that could change the economic outlook and lead us to change interest rates


Pictures are worth 100 words and explains much more. It also takes away all that seriousness associated with mon pol and tries to explain its decisions to a wider audience.

“I think our challenge is to speak in plain English as opposed to in a high tech scientific language around which only about half a dozen people understand and even less are interested in,” Orr told reporters at a press conference after he held rates at a record low 1.75 percent “We do need to have a richer dialogue.”

Orr opened his first webcast press conference with a welcome in English, Māori and sign language and was at points knowingly self-deprecating, joking when he turned to one of his deputy governors to check a statistic that he “struggles to divide three by two.”


Orr has engaged in a local media blitz since becoming governor in March, giving interviews to several regional publications, following a RBNZ-commissioned survey that found the vast majority of the general public had no idea who he or the central bank was.

“That’s a good thing on a Saturday at the football ground,” referring to the public’s lack of awareness of his and the bank’s role. But Orr said, it’s “not necessarily a good thing if we’re trying to raise financial literacy and make people think harder about all the things that are important to us.”

He describes himself as CEO, rather than a governor, a role that he sees as encompassing everything from regulation to responsibility for bank notes as well as monetary policy.

 While economists say there’s probably more change in style than substance, Orr’s fresher, open tone is grabbing headlines and more public engagement is likely. “That’s another area we hope to upgrade, the quality of our pictures,” he told reporters. “These were one of the only things we could get immediately out of one of our kids’ icons actually.”

Will other central banks follow? Will we see policy decisions explained more via some kind of a comic?

Having said that, Orr must also be careful of not overdoing this publicity bit. Central bankers who live by media, die by media too!


Norway’s central bank starts a blog..

May 9, 2018

After Bank of England’s Bank Underground blog, St Louis Fed’s blog, Norway’s central bank  also starts its own blog. It is named Bankplassen as the office of the central bank is located at Bankplassen address in Oslo.

The central bank Governor Oystein Olsen welcomes to the blog. Here is the English translation:

Openness is a key word for everything we do in Norges Bank. When we launch our own blog today, it is to give our own employees the opportunity to discuss open-ended professional questions and to provide everyone who wants to observe and participate in the debate.

The name is not randomly selected. Norges Bank has held office at Bankplassen in Oslo since 1830. The “Bankplace Blog” is intended to give associations an open space where opinions and views are exchanged freely.

I have to admit that the blog format is a bit new to me. But as a long-standing researcher, I know how much energy and knowledge it is to extract from a good discussion with skilled professionals. Today, such discussions can take place in other arenas than before. The bankplace blog is an attempt from our side to create a new arena.

For those who have followed Norges Bank closely in recent years, this blog will not be a genuinely new one. Every year our professionals publish a number of signed publications under vignettes like Current Comment, Working Paper, Staff Memo and Scripts. In the form, posts on Bankplace blog will be closest to Current Comment, but the degrees of freedom are many. I hope and think we will see variation in both width, depth and length.

In all the signed publications published today by Norges Bank, the content of the authors’ bill stands – it does not necessarily represent Norges Bank’s official view. The same will apply to Bankplace blog.

One of the biggest benefits of the blog format is that it encourages immediate response. You can comment on posts and you can share posts on other digital platforms. There is an opportunity I hope you as reader know to make use of.

Good luck and good reading!

Central banks are slowly warming upto blogs. The blogs clearly help communicate research and new ideas to a wider audience in an informal way.

Recently Mark Carney of Bank of England said on the Bankunderground blog:

Last year, less than 0.1% of all GCSE students and 4% of A-level students studied economics. Part of the problem is that because of its unfamiliarity, economics can seem unappealing. The Royal Economics Society suggests people’s lack of enthusiasm for the dismal science is based on a narrow (and
dry) perception of the subject and its masters.

As you might expect, I disagree. And so do most students, once we meet them. They are usually surprised by the breadth of topics that economists consider. For example, colleagues are currently working on issues such as the impact of Artificial Intelligence on the future of work, the role of the financial system in combatting climate change, and the value of diversity in decision making .A quick visit to our Bank Underground blog will reveal articles on the impact of mental health, crypto currencies and driverless cars on jobs, growth, inflation and wellbeing.

Hope to read some interesting stuff on Bankplassen blog as well..

Lake district Pound: a local currency where demonetisation warning is given well in advance..

May 4, 2018

JP Koning keeps givings us gems related to money.

His recent one tells us about this local “annual currency” – Lake district Pound:


When a central bank indulges in culture: Case of FInland

May 3, 2018

Via this press release from Finnish Central Bank:

The Bank of Finland will open its doors to culture for four days in May. Visual art, music, literature and film will be presented in the main building of the Bank of Finland (Snellmaninaukio, Helsinki) and in the Bank of Finland Museum (Snellmaninkatu 2).

“It will be the first time we have offered such diverse coverage of culture in the Bank of Finland. In addition, the programme will also feature short presentations on financial topics,” says Erkki Liikanen, Governor of the Bank of Finland.

At the event, music and visual art will complement each other. Music performances will be given by the young, gifted pianists Maria Hämäläinen, Anton Mejias, Tarmo Peltokoski, Ossi Tanner and Aleksei Zaitsev. There will be three piano concerts each day. The pianists have been brought together by Niklas Pokki, Lecturer of Piano Music at the University of the Arts Helsinki, Sibelius Academy.

The art exhibition to be held in the main building will feature familiar art classics, such as Akseli Gallen-Kallela’s Aino triptych. In addition, the public will see works by Ville Andersson, Paul Gustafsson, Kristian Krokfors and Anna Retulainen, from among the most recent art acquisitions, and selections from the art collection, which contains nearly 1,200 works. Also on display will be works by representatives of Constructivism, including Göran Augustson, Juhana Blomstedt and Jorma Hautala as well as Pentti Kaskipuro and his students Outi Heiskanen, Elina Luukanen and Esa Riipa. The exhibition is curated by art expert Markku Valkonen. Members of the Bank of Finland’s art club will act as guides. Many of the art works can also be viewed online

In addition to culture, visitors can also enjoy short presentations by Bank of Finland and Financial Supervisory Authority experts as well as the main building and history of the Bank of Finland.

Discussions will also be held in the Bank of Finland Museum during the open doors event. The theme of the discussion beginning at 14.00 on Saturday, 26 May will be books dealing with 1918. The participants will be Professor Emeritus Seppo Hentilä and writers Anneli Kanto and Antti Tuuri. The film “The Finns and Money – A Love Story”, directed by the legendary and versatile film expert Peter von Bagh, will be screened at 12.30 and 14.45 on Sunday, 27 May. Before the first screening, film director Aki Kaurismäki and musical artist Sakari Kuosmanen will discuss the life’s work of Peter von Bagh. The discussion will be shown as a video recording before the second screening. The Bank of Finland Museum events will be hosted by Governor Erkki Liikanen.

Interesting way to promote the Central bank activities and explain its role to public…

Andy Haldane: Will big data keep its promise?

May 3, 2018

One must try and read most speeches by Andy Haldane of Bank of England. He has a flair for summing up a topic in a lucid and detailed manner.

In this speech, he looks at big data. How big data is like oil industry:

The first thing to say is that Big Data and data analytic techniques are not new. Nonetheless, over recent years they have become one of the most rapidly rising growth areas in academic and commercial circles. Over that period, data has become the new oil; data analytic techniques have become the oil extraction and refining plants of their time; and data companies have become the new oil giants.2

Yet economics and finance has, to date, been rather reticent about fully embracing this oil-rush. For economics and finance, the use of data analytic techniques has been the path less followed, at least relative to other disciplines. One simple diagnostic on that comes from looking at the very different interpretations put on the expression “data mining” by those inside and outside of economics and finance.

For economists, few sins are more heinous than data-mining. It is the last resort of a scoundrel to engage in “regression-hunting” – reporting only those regression results which best fit the hypothesis the researcher first set out to test. It is what puts the “con” into econometrics.3

For most economists, such data-mining has unfortunate similarities with oil-drilling – a dirty, extractive business which comes with big health warnings. For data scientists, the situation could not be more different. For them, the mining of data is a means of extracting valuable new resources and putting them to use. It enables new insights to be gained, new products to be created, new connections to be made, new technologies to be promoted. It provides the raw material for a new wave of productivity and innovation, an embryonic Fourth Industrial Revolution.

Then he explains the differences between deductive (theory to data) and inductive (data to theory) reasoning. Big data makes inductive reasoning possible in a ‘big way’ but it should be balanced with applying logic and thoughts to the trends.

Then there are three Vs in big data: volume, velocity and variety.

He even quotes/refers to some interesting research related to big data..

Amidst all digital money talk, Bank of England appoints a new Chief Cashier..

May 2, 2018

Just read this news where Ms. Sarah Jones has been appointed as the Chief cashier of the Bank of England.

I also learnt that in England it is the chief cashier who signs the banknotes!:

As Chief Cashier and Director of Notes, Victoria is responsible for making sure that our banknotes have the latest anti-counterfeiting technology, so that people can have confidence that the banknotes they use every day are genuine. The Chief Cashier must also make sure there are enough banknotes in circulation, so they work closely with financial institutions, banknote suppliers and retailers.

You can find the Chief Cashier’s signature on every one of our banknotes. Chief Cashiers sign banknotes on behalf of the Bank to demonstrate our promise to pay the value of the note for all time. Originally, Chief Cashiers’ signatures were handwritten on each banknote one by one: now the signature is added as part of the design and appears on each banknote that is printed.

The first Chief Cashier was John Kendrick. He was appointed in 1694, the year the Bank was founded.

The link also has the list of Chief Cashier since 1694 onwards.

Nice to know this bit. Will be interesting to compile a list of who signs the banknotes in different countries.

How will Swiss National Bank distribute its record profits?

April 27, 2018

SNB made record profits for 2017.

Jean Studer President of the Bank Council at Swiss National Bank gives an overview of balance sheet and profit distribution.


World reserve currency: From Dollar to e-SDR

April 27, 2018

Andrew Sheng and Xiao Geng in this piece say time is ripe to push e-SDR or digital SDR as reserve currency:

A key hurdle for the SDR has always been the geopolitical interests and priorities of the reserve-issuing central banks (not just the US, but also the eurozone, China, Japan, and the United Kingdom). But the advent of cryptocurrencies may offer another way: the private sector can work directly with central banks to create a digital SDR to use as a unit of account and store of value.

Such an “e-SDR” would, in a sense, be the quintessential reserve asset, because it would be fully backed by reserve currencies, in the IMF-determined ratio. The supply of e-SDRs would be completely dependent on market demand.

Of course, to enable a gradual shift from the US dollar to an e-SDR as the dominant international reserve currency, a sufficiently large e-SDR-denominated money market would need to be created. To that end, a politically neutral body, owned by the private sector or central banks, should be established to issue the asset. Participating central banks and asset managers would then have to swap their reserve-currency holdings for e-SDRs.

Once the private sector comes to view the e-SDR as a less volatile unit of account than individual component currencies, asset managers, traders, and investors could begin to price their goods and services, and value their assets and liabilities, accordingly. For example, the Chinese government’s massive Belt and Road Initiative could be conducted in e-SDRs. In the longer term, an international financial center, such as London or Hong Kong, could spearhead experimentation with e-SDRs using blockchain technology, with special swap facilities being created to make the asset more liquid.

I am not sure whether e-SDR matters much here. How much of SDR is physical anyways? It is an accounting identity and has been in so called digital form since inception.

One also does not think cryptocurrencies are making any headaways given most central banks and governments opposing them.

The real question is not e-SDR or SDR. It is whether SDR can be created a reserve currency. There was never much support for it earlier and same stands true today as well.

Garrulous central bank Governors (vs Reticent ones..)

April 24, 2018

Michael Reddell in his new post highlights how New Zealand has had very talkative Governors earlier citing case of Don Brash. This was also due to the central bank law which made the Governor the sole authority behind most matters.


Post-Brexit: Pitching for Paris’ attractiveness as an integrated financial centre

April 24, 2018

Rise and fall of financial centres is one of the favorite topics of this blog. As we dabble through daily economics and finance, the slow and shifting trends of financial activity from certain places to another is quite fascinating.

Pre-Brexit, London was comfortably placed as despite maintaining  its own currency Pound, it was the centre of European finance. Post-Brexit, the future of London as a centre of European finance is being discussed.

London’s loss is being seen as Paris’ gain. The European Banking Authority headquarters has shifted from London to Paris. The French authorities have started making pitches to global financial to evaluate Paris.

In a recent speech, Banque de France (Central Bank) Governor, speaks of multipolarity and competition in financial centres:


Bitcoin and the Dodo-Bones Theory of Money

April 20, 2018

Monetary debates are usually seen as between Friedman-Keynes or Friedman-Hayek and so on.

JP Koning points to this fascinating debate between Joseph Shield Nicholson and Benjamin Anderson. Both were not so famous economists but their views on what is money remains as relevant as ever.

For instance, Nicholson spoke about dodo bones being money:


Cryptocurrencies in the global economy: Norges Bank edition

April 20, 2018

One is summarising the speeches of several central bankers on digital and crypto currencies.

Here is Deputy Governor Jon Nicolaisen of Norway’s central bank. He does not think much of these digital currencies but says one should not miss on the potential of new technology.


Understanding digital currencies via the money tree

April 19, 2018

The Czech central bank Vice Governor, Mojmir Hampl had earlier remarked:

the positive philosophical influence of bitcoin on the conservative world of central banking. True, it is far from clear that anytime soon a full-fledged digital currency (be it blockchain based or not) will be created by a central bank (some of you may be following the debate in the Riksbank in Sweden), but the last three years have seen an explosion of research on this idea in many central banks. Bitcoin must be credited for this powerful intellectual stimulus. When so many professors at the most esteemed universities of the developed world are not thinking about potential reforms of the current monetary order, we have received a stimulus from the libertarian IT guys instead. Fine.

The intellectual stimulus has been amazing as one is getting to read so much on money and its basics.

BIS researchers gave us the money flower:


RBI’s woes spreading from banking regulation to cash management..

April 17, 2018

It is quite surprising how cash crunches are becoming common since Demonetisation in Nov-2016. We also have issues of some denomination of currencies are not accepted like Rs 10 and small amount coins.

It is for nothing that scholars who studied money and its history advised never to interfere with money. For instance, Milton Friedman quoted John Stuart Mill:


Cash crunch in parts of India?

April 17, 2018

There are reports coming from different corners about cash crunch and empty ATMs.

Madhya Pradesh chief minister Shivraj Singh Chouhan on Monday alleged a conspiracy aimed at creating cash crunch in the market by hoarding Rs 2000 currency notes and warned that the government will act sternly against the perpetrators.

“When demonitisation took place, markets were flooded with currency notes worth Rs 15 lakh crore. Today, Rs 16.5 lakh crore currency notes have been printed and circulated. But where are the Rs 2000 currency notes vanishing? Who is hoarding them? Who is creating currency crunch?” Chouhan asked a large gathering of farmers at Shajapur district headquarters. 


Cultural differences in monetary policy preferences

April 17, 2018

An interesting paper by Prof. Adriel Jost of Univ of St Gallen and Swiss National Bank.

The monetary policy preferences of a population are often explained by the country’s economic history. Based on Swiss data, this paper indicates that while different language groups may share the economic history, they demonstrate distinct monetary policy preferences. This suggests that distinct monetary policy preferences among the populations of different countries may be determined by not only their economic histories but also their distinct cultural background.

The author tries to figure the differences using several tests and datasets. For instance: (more…)

Is India a currency manipulator?

April 16, 2018

The US Treasury in its semi-annual currency report to the Congress has added India on the watchlist of currency manipulators:

Treasury has established a Monitoring List of major trading partners that merit close attention to their currency practices and macroeconomic policies. An economy meeting two of the three criteria in the 2015 Act is placed on the Monitoring List. Once on the Monitoring List, an economy will remain there for at least two consecutive Reports to help ensure that any improvement in performance versus the criteria is durable and is not due to temporary factors. As a further measure, this Administration will add and retain on the Monitoring List any major trading partner that accounts for a large and disproportionate share of the overall U.S. trade deficit even if that economy has not met two of the three criteria from the 2015 Act. In this Report, the Monitoring List comprises China, Japan, Korea, Germany, Switzerland, and India, the latter being added to the Monitoring List in this Report.

Why India has been added?

India increased its purchases of foreign exchange over the first three quarters of 2017. Despite a sharp drop-off in purchases in the fourth quarter, net annual purchases of foreign exchange reached $56 billion in 2017, equivalent to 2.2 percent of GDP. The pick-up in purchases came amidst relatively strong foreign inflows, both of foreign direct investment and portfolio investment. Notwithstanding the increase in intervention, the rupee appreciated by more than 6 percent against the dollar and by more than 3 percent on a real effective basis in 2017. India has a significant bilateral goods trade surplus with the United States, totaling $23 billion in 2017, but India’s current account is in deficit at 1.5 percent of GDP and the exchange rate is not deemed to be undervalued by the IMF. Given that Indian foreign exchange reserves are ample by common metrics, and that India maintains some controls on both inbound and outbound flows of private capital, further reserve accumulation does not appear necessary.


In the earlier report, Treasury had said it is watching India:

Over the first half of 2017, there has been a notable increase in the scale and persistence of India’s net foreign exchange purchases, which have risen to around $42 billion (1.8 percent of GDP) over the four quarters through June 2017. India has a significant bilateral goods trade surplus with the United States, totaling $23 billion over the four quarters through June 2017. Treasury will be closely monitoring India’s foreign exchange and macroeconomic policies.

Mint edit says India is not a currency manipulator:

How are countries accused of currency manipulation by the US Treasury actually identified? There are three parameters that are used, sometimes unthinkingly. First, a country has to run a significant trade surplus of over $20 billion with the US. Second, it is judged not by the amount of currency intervention but whether such an operation is a one-sided attempt to keep the exchange rate down, measured in terms of additional foreign exchange reserves as a percentage of gross domestic product (GDP). Third, a country should have a large current account surplus with the rest of the world. How does India fare on these three fronts?

India does have a $23 billion trade surplus with the US, though that is dwarfed by the $375 billion trade surplus that China runs with the US. Mexico, Japan and Germany have far bigger bilateral trade surpluses. The net foreign exchange purchases by the RBI in 2017 amounted to 2.2% of GDP, which is close to what Thailand, Taiwan and Switzerland have done. And India is the only one of the countries on the US Treasury list that has a current account deficit with the rest of the world. Countries such as Thailand or Mexico were considered far more likely than India to be identified as potential currency manipulators.

Do Indian policymakers have to worry? They should not in normal times. The mechanical way in which the US Treasury interprets its three main parameters for identifying currency manipulation is almost scandalous. Also remember that the US has not yet formally accused China — with its notorious mercantilism — as a currency manipulator. US President Donald Trump had promised during his election campaign to treat China like a currency manipulator. If a country such as China with a massive bilateral trade surplus with the US, a large current account surplus with the rest of the world, and historically unprecedented management of its exchange rate is still only on the watch list, then the chances of India being actually termed a currency manipulator are slim.

The problem is that these are not normal times. Trump is merrily charging into a trade war that has much of the world on tenterhooks. He believes American workers are getting pushed into a corner because of trade partners who get preferential treatment in free trade agreements, or who strategically use trade barriers, or who keep their exchange rates artificially low to promote exports to the US. The new list released by the US Treasury needs to be seen against this background.

Indian policymakers have to be sensitive, without actually overreacting, to the risk that Trump may move from rattling the sabres to actually using them. India has traditionally tried to balance between preventing excess currency appreciation on the one hand and protecting domestic financial stability on the other. Much now depends on how the Indian government and the Indian central bank respond to the implicit US threat — but the two most obvious consequences could be an appreciating rupee as well as excess liquidity that messes with the interest rate policy of the RBI.

Ira Dugal discusses on BQ:

While there is no doubt, that India is now comfortable on forex reserves, the Treasury Department’s own data shows that its reserve accretion in 2017 and level of reserves is comparable to the other trading partners of the U.S.

The report also looks at adequacy of reserves slightly differently from the RBI by measuring it mostly against short-term debt. However, in a 2015 paper, RBI staffers had pointed out that India may need to consider factors other than the traditional metrics of forex reserve adequacy. One such factor is potential volatility of foreign portfolio inflows, since such flows are a significant source of financing India’s current account deficit.

Finally, while supporting the employment generating export sector is not the RBI’s mandate, it would be justified in keeping an eye out on that aspect too. As a flexible inflation targeting central bank, growth is still broadly part of the RBI’s mandate. To the extent that the currency impacts exports, which in turn impacts growth and employment, the Indian central bank would be justified in ensuring that the value of the currency is not wildly out of line with fundamentals just because of a surge in capital flows.

The geo-politics of currency markets…

Evolution and experiences with inflation targeting in different countries..

April 16, 2018

Interesting conference and set of papers at recently concluded conference by Reserve Bank of Australia .

Reading keeps piling up.

The paper on New Zealand Inflation Targeting is important given NZ has added employment to its price stability mandate.

High-denomination Banknotes in Circulation: A Cross-country Analysis

April 13, 2018

Interesting research by Gordon Flannigan and Stephanie Parsons of Reserve Bank of Australia in the central bank’s revamped Bulletin.

They try to see the reasons behind demand for High Denomination notes in Aus, Canada and UK:

In Australia, Canada and the United Kingdom, the number of high-denomination banknotes in circulation has increased at an above-trend rate in recent years. Evidence suggests that overseas demand might be a common driver of this elevated growth. Increased domestic demand for both transaction and store-of-value purposes may also have contributed, as well as responses to changes in government and central bank policies. This research was undertaken with assistance from members of the Four Nations Distribution Working Group, in line with the group’s objective to explore banknote-related topics that are directly relevant to the member central banks.

The overseas demand is mainly from Asian countries:

A key source of overseas demand for AUD 100 and CAD 100 banknotes appears to be Asia. Liaison with the cash industries in Australia and Canada suggests that there has been an increase in the proportion of AUD 100 and CAD 100 banknotes shipped to Hong Kong and Singapore. For example, in the five years to 2016 it is estimated that 80 per cent of foreign shipments of CAD 100 banknotes were destined for Hong Kong, compared with 60 per cent in the previous five years. Further, it is estimated that shipments of CAD 100 banknotes to Hong Kong accounted for about 5 per cent of all CAD 100 banknotes on issue in 2016, significantly increasing growth in banknotes in circulation in that year. Similarly, partial data from the Australian cash industry suggest that shipments to Hong Kong and Singapore in 2016 were equivalent to about 6 per cent of all AUD 100 banknotes in circulation. The link between Asian demand and GBP 50 banknotes in circulation is less clear. GBP 50 banknotes are primarily demanded by foreign exchange wholesalers abroad, consistent with an overseas store-of-value motive (Fish and Whymark 2015). However, because the British pound is a more prominent reserve currency, offshore demand is likely to be more widespread across countries.


Lots of other ideas and regressions in the study.

It was also interesting to note how government policies in Australia are creating speculation around High denomination notes:

Since peaking in late 2016, growth in demand for AUD 100 banknotes has declined considerably (Graph 4). This may partly reflect heightened uncertainty among consumers and businesses about the future status of AUD 100 banknotes following the Australian Government’s announcement in December 2016 of the formation of the Black Economy Taskforce (BETF). This taskforce aims to investigate and identify where regulations and policies could be introduced to reduce activity occurring outside the tax and regulatory system (excluding illegal or criminal activities). The BETF convening announcement included, among many other options, a discussion around strong demand for AUD 100 banknotes and identified the use of cash as an area to be investigated, generating intense media interest. This announcement coincided with heightened public interest in the future of high-denomination banknotes following decisions in some jurisdictions to withdraw the legal tender status of some high-denomination banknotes (India and Venezuela) or to discontinue production and issuance (euro area).

Daily lodgements of AUD 100 banknotes into cash depots increased sharply after the BETF announcement (Graph 7). It may have been that the BETF announcement, and associated media speculation about the future of AUD 100 banknotes, contributed to uncertainty among the general public and prompted some to spend AUD 100 banknotes that were previously held as a store of value. Liaison with the cash industry has indicated that the increase in lodgements has been evident across a broad range of retail customers, has occurred in most states and has been concentrated in capital cities.


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