Money Finance News RBA says $12.5 billion of cash is in criminal hands
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RBA says $12.5 billion of cash is in criminal hands

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Bags of cash are missing in the economy. Photo: AAP
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Australia has $76 billion in banknotes outstanding somewhere in the economy and detective work from the Reserve Bank has found up to 8 per cent of the stash is tied up with criminal activity and drugs.

In a research paper titled Where’s The Money, the RBA has found the size of Australia’s shadow economy is worth $41.5 billion, up to 50 per cent larger than previous estimates from the Australian Bureau of Statistics.

The slice of this the RBA attributes to the criminal milieu was around $12.5 billion last year – and in that branch of the economy, “cash is king”.

The RBA’s interest is more than purely academic, being responsible for all aspects of the production and issuance of Australian banknotes and ensuring they are a secure store of wealth, as it notes on its website.

So where have the $76 billion of outstanding notes gone, given on average every Australian should have around $3000 in cash either in their wallet, under their bed or buried somewhere?

“Our estimates suggest that between roughly $3.5 billion and $6 billion worth of Australian banknotes are used in the shadow economy, split between underground production [$2.5 to 4 billion], purchases of illegal drugs [around $1 billion], and storing the profits of criminal activity [up to $1 billion],” RBA researchers Richard Finlay, Andrew Staib and Max Wakefield said.

In other words, between 4 and 8 per cent of all banknotes on issue are dodgy.

In the illegal economy cash and drugs go together. Photo: Getty

Tracking how much is spent in the shadow economy and drugs is tricky, given a single banknote is generally used many times before it either falls apart, is lost or handed back to the RBA for destruction.

Nonetheless, using a variety of means – including examining drug concentrations in sewers – and extrapolations, the RBA has found Australians spent around $13 billion on drugs in the 12 months to August 2017.

Almost half of that – more than $6 billion – was spent on methamphetamines, according to the research paper.

The research takes into account that criminals convert a large share of their cash profits into other assets; they do not solely hoard cash.

“Data from cash and drug seizures suggest that drug suppliers maintain cash holdings of around 2 per cent of the value of their stock of drugs, on average,” the RBA team said.

Combining this with our earlier assumptions suggests that total cash hoarding by the illicit drug supply chain is in the range of $40 million to $1 billion, or somewhere between 0 and 1 per cent of all banknotes on issue.”

Given the RBA is the sole issuer and redeemer of Australian banknotes and knows exactly how many banknotes have ever been printed and issued to the public, and how many banknotes, at the end of their life, have been returned to the Reserve Bank and destroyed, it has a pretty good handle on things.

However, as it points out: “Between issuance and destruction, however, there is little public information about where banknotes go or what they are used for.

“Such information would be of interest for a number of reasons, including to aid in forecasting future banknote demand, and to assess the extent to which banknotes are used to facilitate illegal activities or avoid tax obligations.”

However the research does not intend to sully the entire reputation of the Australian banknote, given most of the outstanding notes are in legitimate hands.

Judging by the RBA figures each Australian loses around $170 to $340 a year.

Perhaps it is time to check whether there is a hidden and forgotten stash of wealth buried somewhere beneath the cracks of the couch or rolling around on the floor of your car.

-ABC