Australia’s revenue chiefs are bidding to ban large cash payments to hobble drug dealers and other criminal syndicates, but critics see a more sinister agenda that will allow banks and bureaucrats to manipulate ordinary citizens’ spending habits.
A bill outlawing cash transactions of A$10,000 (US$6,900) or more has been passed by the lower house of parliament and is now being considered by the Senate. Anyone caught breaking the law could be jailed for two years if the legislation becomes law.
Assistant Treasurer Michael Sukkar says the legislation, expected to be enacted in February, is aimed at criminal gangs that make cash purchases of cars, houses and jewelry to launder their profits from illegal activities.
“As cash is largely untraceable, this makes it difficult for law enforcement agencies to trace these activities,” he said, according to media reports.
“The government is sending a strong message to the community that using cash to avoid obligations and potentially engage in criminal activity is a serious matter that requires a sufficient level of deterrence.”
Drug dealers are the main target of the legislation. The Reserve Bank has calculated that they have as much as A$1 billion ($690 million) of cash stashed away at any one time for use in transactions, or 1% of all the notes in circulation.
Australians spend an estimated A$13.5 billion ($9.3 billion) on illicit drugs each year, according to the Australian Criminal Intelligence Commission, with methamphetamines accounting for about 50% of the value.
The narcotics trade is part of a black economy worth as much as A$6 billion (US$4.1 billion), equivalent to 3% of gross domestic product (GDP), that has two components: people concealing legal activities to avoid paying tax and those involved in illegal practices who want to avoid detection.
Both will be pursued under the planned cash law, which will require banks and businesses to report any amounts of A$10,000 or more but still allow private deals involving two parties, such as the sale of an automobile.
It also won’t limit sums handled through digital currencies like Bitcoin, which are already the preferred system of exchange for many criminals.
“Excluding cryptocurrency from these reforms will only supercharge its use by the black economy,” Chartered Accountants Australia and New Zealand tax leader Michael Croker warned in a submission to the Senate.
His organization wants the legislation’s cash threshold to be even lower.
Most cash in Australia’s black economy is in big-denomination notes, prompting the Reserve Bank to consider phasing out the $100 and $50 bills: France and Venezuela have already scrapped their bigger notes.
But there could be a chaotic price to pay, as India found when it withdrew all 500 rupee and 1,000 rupee notes, which amounted to 85% of the bills in circulation at the time.
So far Australia has not followed suit, but it has taken the extraordinary step of tracking the black economy by implanting nano-chips in all new $100 and $50 notes. There are 300 million $100 notes in circulation alone.
Institute of Public Affairs Adjunct Fellow Matthew Lesh likened the cash limit to a similar tactic used by the shadowy surveillance apparatus in George Orwell’s classic novel 1984 to control actions by ordinary citizens.
“The intention of the cash ban is to create an accessible digital record of transactions that government can monitor. This establishes a creepy precedent, foreshadowing a future in which you are only allowed to make purchases that Big Brother can watch,” Lesh, who is also the head of research at the Adam Smith Institute in London, told the Australian Broadcasting Corporation (ABC).
Describing the policy as a “disturbing breach of our right to privacy”, he told the ABC it was doomed to fail.
“They [criminals] will flout the rules by using multiple smaller transactions and illegal bank accounts with stolen identities,” he predicted.
About 70% of Australians keep some money in cash, partly because they mistrust banks following appalling reports of misconduct.
One risk of limiting access to cash is that it could lead to negative interest rates, a scenario in which depositors would effectively end up having to pay to keep their money in the bank. The prime interest rate is currently only 0.75%.
Some senior central bank officials have hinted that they would like to see cash phased out altogether so that more money is available to stimulate consumption growth. All transactions would then go through the banks.
in August, the International Monetary Fund (IMF), which monitors financial stability across the globe, admitted it actually wanted negative rates so central banks would have more policy room to react to periodic crises.
But this could only be achieved by phasing out all cash, as consumers automatically resort to holding notes when deposit rates fall to zero.
“Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive,” the IMF said in a blog article.
It forecast that such a policy would “jolt lending, boost demand, and stimulate the economy.”
Reserve Bank governor Philip Lowe told a parliamentary hearing in the same month that “monetary policy is less effective than it used to be”, and did not rule out taking more drastic measures if needed.
“I think it’s unlikely, but it is possible,” Lowe said. “We are prepared to do unconventional things if the circumstances warranted it.”