The War on Cash: Professor Gigi Foster Grills the Reserve Bank of Australia

The War on Cash: Professor Gigi Foster Grills the Reserve Bank of Australia
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The following is a transcript of Topher’s interview with Professor Gigi Foster of the University of NSW from Episode 46 of The Aussie Wire News discussing the “War on Cash”, which aired on the 5th of October 2023.

Topher: Depending on who you talk to there is either a war on cash or there isn’t. It’s one of those areas where different people, it’s almost like a RW Shack test. People look at it and see entirely different things whilst looking at exactly the same evidence. So,  I wanted to do some digging and while I was digging I came across a familiar name and what she’s done is very interesting.

The Familiar name is Professor Gigi Foster, Professor of Economics from the University of New South Wales, and I came across her in an article that was relevant to the research that I was doing. So I went “you know what? I’m not going to do an editorial on this. I’m going to get it right from Professor Gigi Foster’s mouth.” 

Professor, how are you?

Professor Foster:  I’m very well. Thanks for having me on Topher.

Topher: Look, it’s always a pleasure and we actually, I have the pleasure of joining you in Sydney in a couple of months time for the launch of a very exciting project over there. I’ll have to get you back on to talk about that closer to the time. Right now let’s talk about this push for a cashless Society.

Some people say that there is no push for a cashless Society, it’s just that people don’t want it. How do you respond to that?

Professor Foster: Well, it’s certainly true that a lot of people these days feel they could do without cash. Particularly in Australia. And there are some economies, very small ones I must say, but some that have tried to go fully cashless. And there are arguments for um at least using cash less, because it is quite efficient for a one-off transaction to be able to just tap your card instead of having to dig out cash. You can see the draw of that in the short run.  But there is a lot of heterogeneity amongst Australian consumers and so, in fact, if you ask the RBA, which I did a few months ago, whether or not people are still using cash? And if they are, does that matter to the RBA’s policy? Then you get a, a very enlightening answer.

So people are using cash, not everybody, and a lot of people are using it as a store of value, as we say, primarily rather than as necessarily a medium of exchange. So what this means is people are hoarding cash. They’re keeping cash in their mattresses. I mean I’ve got a few hundred bucks up there just on my desk, right? Just people have it hanging around. And so from that perspective, in a high inflation environment it’s not such a wise investment to to have that as, you know, the main way you’re storing your wealth, but to have a bit of a buffer for an emergency. Most people do use cash for that purpose at least. And, of course, other people also use it a lot for transactions.

Topher: Of course. We’ll come back to what the RBA said to you when you asked them a few months ago in just a moment, but first I want to set the scene here because this is, this is a, a slightly fraught topic. There are people that are interpreting the evidence in very different ways. We had reports for a little while that a number of Bank branches were going cashless but that’s not quite technically correct, is it?

Professor Foster:  No no it isn’t. I mean, so if you say the word “cashless” often it kind of conjures up the idea that you can’t anymore use cash at that facility, but in fact what they mean when they say that a branch is going cashless is that they won’t give you cash over the counter. If you want to make a withdrawal in cash you simply are directed to the ATM, which is typically there, you know, alongside the branch. And so there is still an availability of cash, but it’s just not available from the warm body behind the counter.

Topher: Now what’s interesting is that the banks have taken to calling these sort of, uh these Branches with no over the counter cash transactions, they call them ”specialist centres”, but I don’t know about you, but I’d like my bank to specialise in giving me my money. That’s kind of the number one specialty that I think my bank should have. 

It’s also interesting though because the ultimate in a cashless bank branch would have to be a bank branch that doesn’t exist and what we are seeing is an awful lot of branches being shut down.

Professor Foster:  Yeah that’s very true, and that’s really worrying. I mean, one of the things about cash that I really love and I think we just, we fail to highlight and emphasise enough, including to our kids by the way, is that it is a very kind of equitable means of transacting. You don’t have to have a, you know, a savings account, you don’t have to have a credit card. You don’t have to have even a bank account of any sort in order to be able to accept and then use cash. So a homeless person on the street can accept donations in cash and use those donations to buy food. That means it’s accessible to that person and that makes a real difference. In a society where we say we care about the plight of the disadvantaged. Well the disadvantaged are not just disadvantaged economically but financially as well often in terms of their, their access to credit markets. So, providing cash is a way of incorporating those people better into our economy.

Topher:  Very true. Now this is an interesting one. 

So, there’s been a lot of claims that, that shops are not allowed to refuse cash. Cash is legal tender. Legal tender must be accepted. We were chatting just before we came on air neither of us are aware of an actual Court precedent on this, but the RBA and, and other sort of bodies that claim to know these things have come out with an opinion that is is certainly not the one that I would have expected.

Professor Foster:  Yeah no. So this idea that it matters how you’re using your cash as to whether or not cash must be accepted is uh is kind of a new concept. 

When I was growing up, certainly in the US, you know you would read the bills and it says you know “In God We Trust. Legal tender” right? And that’s kind of you think “okay, well that’s what we are talking about. Legal tender for everything, no matter what you want to use this money for”. But. um yeah, we were talking before and you said apparently the RBA’s interpretation is that cash is only required to be accepted by creditors who are uh fielding receipt of a debt. So, a payment from somebody else rather than necessarily for transactions in real time. So if I go to my local cafe, in fact there is a cafe on campus at UNSW which says it doesn’t take cash. I mean I don’t, I don’t go there right. But it has a sign that says it doesn’t take cash and I I’ve often thought “well how can that possibly be? How is this, you know, proprietor of this place not being challenged on that by people who would like to use cash?” Of course it’s a very posh clientele that they have their on campus. Most people have bank accounts and they, they will have cards and so they don’t really hear, they don’t see the cost of giving up cash or disallowing cash in the moment. 

Topher: And to be clear I don’t think this is how it should be, but my understanding of the RBA’s argument is that in the Constitution it specifically states that legal Australian money must be accepted in the payment of debts, and that appears to be the the technicality that they’re using to say “oh but that doesn’t apply to transactions if you’re buying something it’s not the payment of a debt. And so actually the Constitution doesn’t have anything to say about that”. Well, if someone would to challenge that in court I think the high court might come to a different decision than what the RBA is saying at the moment uh but who’s going to spend millions of dollars challenging that in in the high court.

Professor Foster:  That’s exactly the problem, and this is a problem that actually as an economist I face a lot. I see a lot of situations where there’s a clear policy direction that would benefit all of Australia, but very few individual people, if any, would have a personal incentive to actually, you know, really push for that policy. And particularly in the case of legal challenges uh here, the the cost of that sort of legal challenge is just enormous compared to the marginal value that you get as one individual consumer of being able to use cash.

Topher: Yeah. No, I can’t imagine a scenario, no matter how how wealthy I got in some hypothetical future, I can’t see a scenario where I would look at that and see that as worthwhile. 

But of course all this is now against a backdrop of an increasing string, I would almost say, of EFTPOS outages. ANZ went down. Woodies went down. This is, this is just in the last week. This isn’t the first time we’ve seen these things happen. It won’t be the last. You know, the sight of Woolies stores putting up handwritten, and very poorly spelled out my may I say, signs uh saying “I’m sorry we’re only accepting cash at the moment”. Shouldn’t this be an alarm bell for people?

Professor Foster: Yeah totally, Topher. I mean this is a hilarious sort of thing. I have to laugh just because it’s it’s emblematic of the modern time we live in right? There are so many situations, and not just in this area, so many situations I encounter every day in my work for example. And many people, many listeners of your show will as well, where a process that used to be pretty simple, where there was maybe a paper form or just, you know, something written down which would handle a problem has now been superseded by some teched up bureaucratic solution which involves the internet and involves, you know, something working and browsers, you know, latching onto things. Or somebody’s phone having charge or something technical. And there is a risk inbuilt in that right? I mean, it might fail. Like it’s like driverless cars right? People think “oh it’s all the rage. It’s going to be great!” Well, you know what happens if it freezes up because it doesn’t know what to do? What happens if there’s a system failure right? I mean mechanical things fail. And cash, you know, kind of is just there. Yeah it could go up and smoke, that’s true, but you know, as with so many things, how about diversifying. If you diversify the different options you have, you’re safer. It’s a, it’s a more robust sort of healthier economy that gives multiple different options to suppliers and customers to pay for stuff and to, you know, to shop at different places. I mean the basic argument that we have for competition holds here as well. You want to have different opportunities to choose. Would I like to use cash here or not because just in case there’s a an outage or there’s a problem maybe, you know, cash goes up in smoke, then you really want to use the the EFTPOS right? So why shut down options? 

Topher: But also, I mean, Electronic Banking has brought in enormous benefits in the efficiency of making payments and doing business overseas etc. Noone that I’m aware of is arguing that we shouldn’t have the ability to make electronic payments. It’s this question now over are we going to lose the ability to actually exchange legal tender? To exchange bank notes?

Now, you mentioned at the very start of this, this interview that you’ve actually reached out to the RBA and had a bit of a chat with them about this. So what have they said about the future of cash? Do they have plans to phase it out and what would the criteria be?

Professor Foster: Yeah, so I was physically there actually. In the Kirribilli branch. Because, as you know, the Martin Place uh Bank headquarters is being refurbished. Has been refurbishing uh itself for quite a number of months now. And I was there because I was escorting a team of students uh for the Australasian Economics um Competition which, we do an economics Olympiad competition which we run every year which was very exciting. And so we brought these students five Australian students and five Singaporean and five New Zealanders there to the bank. And we gave them the opportunity to ask questions and hear about what it was like to be a, you know, an employee at the bank and what does a bank handle and whatnot. And I took the opportunity to ask “look, you know, there’s a lot of news these days about digital currencies and some fear out there in some quarters that perhaps we’re going to accelerate ourselves here in Australia to become a cashless society and people are, in some quarters any way, worried about that. Does the bank actually have plans to go fully, you know, digital or, and to, to basically abandon cash?” And this was after I had been told, the whole group had been told, that you know, people are still using cash and there was in fact a guy up there on the panel who was in charge of analysing, um the quality of the currency in circulation. So making sure that like all of our bill, roughly all of our bills you know, that there’s a high, there’s a high threshold of quality. So that, you know, you’re less likely to have counterfeit bills and you’re less likely to have just dirty bills and things like this. And so, you know obviously his job is predicated on the existence of cash. So, you know, we talked about that a bit and and I was just you know trying to scan the future and I was told “look, as long as people demand cash we will not abandon it.”

Topher:  Wow 

Professor Foster: So the bank, at least in that room, the bank was expressing its service role, uh which I think is very appropriate towards the people of Australia to say “look whatever you guys want, we’re going to support”.

I do think that it would have been wise, it is wise, to have a kind of custodianship role informed by the economics of the situation that says “look even if there aren’t that many people demanding it, uh to sort of make it economic to continue having cash, perhaps we should anyway”, because it’s a good option to preserve for all the reasons that we talked about right? To be able to have an equitable uh financial mechanism for people who are otherwise excluded from from financial markets to uh protect ourselves against outages electrical and otherwise, technical and whatnot. And, of course just to give people you know an option to store value in their homes if they want to do it. That way just, you know, it’s something that allows people freedom. So, you know, for all those reasons I actually think the bank should have, should take even a more proactive stance and say look we’re not going to get rid of cash, but to track use is a reasonable thing because of course you want to put as much into circulation as you actually uh need to for the demand that you’re experiencing. 

Topher: Well, I mean what that comes down to is basically they’re saying that the, the responsibility is on us. For as long as the metrics, for as long as the numbers are showing that cash is in demand. If we put them into a situation where cash, cash usage went up and more needed to be put into circulation that would send a pretty clear signal. I’ve got to admit I’ve been slacker than I could have been in terms of this. This using cash thing. I enjoy the convenience. Actually it’s not even the convenience of the moment for me. It’s the convenience of the paperwork afterwards. Tracking all the tax and this and that. Having all the transactions there and just showing up in the bank account. That’s actually the thing that’s convenient for me. And paying in cash and having to keep receipts and do it all that way, um is is an absolute pain in the backside in my opinion, um but I’m going to have to change my attitude, because it’s very very clear that the responsibility is on us. It’s now come from The Reserve Bank directly uh through you Professor Gigi Foster, so thank you so much for bringing us this story, and thank you for coming on The Aussie Wire. We really appreciate it. We will have you back soon to talk about what you’re doing with the University of New South Wales.

Professor Foster: My pleasure. Thanks a lot.

You can watch this segment of The Aussie Wire News here.

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