The Turnbull government’s suggestion that it may abolish the nation’s biggest demonination banknote and impose limits on large cash payments will rile many Australians, who use cash for convenience, privacy and to protect themselves against emergencies.

Financial Services Minister Kelly O’Dwyer announced on Wednesday that the government will try to squeeze more tax revenue out of the “black economy”.

The government will set up an expert panel to investigate controls on large cash payments, as well as the future of the $100 note, Ms O’Dwyer told ABC radio.

Kelly O’Dwyer says a crackdown on cash will boost the budget. Photo: AAP

“We’ve got about $30 billion worth of $100 notes in circulation at a time when increasingly we have people more and more using electronic payment systems. It does beg the question, why?”

Mick Vort-Ronald, a banknote researcher and collector, slammed the proposal of abolishing big notes as “scaremongering” and a “silly” idea that would fail to raise extra revenue.

“The fact that the $100 note has been in for 30-plus years, they’d have to have a very strong case to ban it. And this business about getting rid of the black economy, that’s just an excuse,” Mr Vort-Ronald told The New Daily.

“It’s based on a silly ideology that we can stop this black market, we can stop underhanded tax evasion, we can stop the druggies by getting rid of the $100 note.”

The banknote enthusiast, who has written on the subject for more than 40 years, said losing the $100 note would be a “great inconvenience to everyone”.

His concerns are likely to reflect those of many in the wider community, especially older demographics and Australians of non-caucasian backgrounds, as confirmed by Reserve Bank research in 2013.

Modi’s ‘demonetisation’ is causing chaos. But his government is actually increasing the value of the largest note. Photo: Getty

Despite the rising popularity of digital payments, more and more cash has been circulating in the Australian economy for the past 20 years. Two leading theories are hoarding, and that foreign tourists prefer larger notes.

National Seniors CEO Dagmar Parsons said any move to withdraw $100 notes from circulation would need to give plenty of time for older people to convert or deposit their cash savings.

“Cash transactions are a legitimate and preferred choice for many older people who are concerned about the security of electronic transactions and want to avoid transaction fees,” Ms Parsons told The New Daily.

“Anecdotes from our members also suggests that cash is still considered a safe haven and important for emergencies.”

There is a global trend of removing large notes. For example, Europe will soon retire the 500 euro note. The US removed all bills larger than $100 in the 1960s. But in purchasing power terms, no country (not even India) wants to remove a note of such a comparatively small value as that of Australia.

The Turnbull government may have been inspired by research published by an investment bank in November.

Mick Vort-Ronald says drug money, like these notes seized by NSW police in 2014, is usually $50 notes. Photo: AAP

In it, analysts at UBS argued that the removal of $100 notes would be a boon for Australian banks because it would boost deposits and digital payments, and reduce reliance on local branches.

The move would also reduce crime, increase tax revenue and reduce welfare fraud, the UBS analysts wrote.

Presumably, the government was not inspired by the chaos triggered in India in recent weeks by Prime Minister Narendra Modi’s snap decision to retire all 500 and 100 rupee notes.

But even India is keeping its large notes. Its central bank will issue new 500 rupee notes, and even create a new 2000 rupee note.

Crime or hoarding?

As Ms O’Dwyer said on Wednesday, the number of $100 notes in the economy is high and rising.

Data from the Bank for International Settlements, the central bank of central banks, confirms that all kinds of cash – small notes, large notes and coins – are increasing in Australia, despite digital payments making up a larger and larger percentage of purchases.

In 2011, the value of notes and coins circulating in Australia was 4 per cent of GDP. By 2015, it grew to 4.64 per cent. It is a trend dating back at least 20 years.

In recent times, the biggest increase has been in large notes. There were 324 million $100 notes issued in 2015 (an increase of 41 per cent since 2011), and 678 million $50 notes (up 22 per cent).

Given Ms O’Dwyer’s comments, it would seem the government’s theory is that large notes are being used for nefarious purposes: crime and cash-in-hand payments that circumvent the tax and welfare system.

Another possibility is that everyday Australians are hoarding the notes because they fear some kind of emergency – and that foreign tourists like using large notes.

A white paper by French firm AGIS Consulting published in 2012 found that demand for cash surged across the world after the financial crisis of 2008, as customers hoarded it, fearing the collapse of the banking system.

The wartime Labor government of John Curtin abandoned its attempt to remove the largest pound notes. Photo: Getty

Cash is important because it generates trust; protects privacy; can be used universally by all people in a society, regardless of their social position; and is used easily in emergencies, such as banking outages and natural disasters, the French report found.

Many years ago, the Australian government tried to abolish large denomination notes.

After World War II, the Labor government of John Curtin proposed to declare all £20, £50, £100 and £1000 notes as no longer legal tender, to prevent tax evasion and their use in the black market.

It never happened. The regulation, under the National Security Act, was gazetted in May 1945, but didn’t come into force. It was overridden by the Commonwealth Bank Act later that year.