In September of this year, Peter Mair’s submission to the RBA Innovation Review Conclusions created a surprising media splash. Mr Mair, a former RBA official and current finance media commentator, suggested significant and widespread hoarding of $50 and $100 banknotes by older Australians. In the media frenzy that followed, Mr Mair further suggested that “the average pensioner couple could hold up to $50,000 in undeclared $50 and $100 notes to get access to the pension.” Not surprisingly, these comments set off a media firestorm. The Minister of Finance Penny Wong commented, responding, somewhat tongue in cheek, that she hadn’t been looking under any pensioner’s bed for cash! The coverage raises the issue of high denomination banknotes in Australia. Are we awash in high denomination banknotes in Australia? Is Australia out of line with its international peers? Where are all those $100 notes and what are they being used for?
The publication of the Reserve Bank’s Conclusions for its two year Innovation Review is shaping up as the catalyst for a new round of structural evolution in the Australian payments system. Payment participants have been set a challenge: establish a better long-term payments platform. Doubtless, effective coordination of industry participants is needed to meet the challenge. Nevertheless, it will be good old-fashioned competition that delivers the new products that ultimately benefit customers. Bluntly, new payment systems only take off when schemes and participants work out how to use them to offer stuff that customers want, and will pay for.
"The payments system is built on networks, which means that a certain amount of coordination and collaboration is essential for it to function and develop over time. The challenge is to encourage stakeholder collaboration that supports innovation and competition while discouraging collective or individual behaviours that are detrimental to payments system users." No one at APCA wrote this paragraph - it comes from the final report of the Canadian Government's Payments System Review. The thing is, we could have written it. It expresses APCA''s philosophy as the payment system self-regulatory body.
Believe it or not, the current US Presidential nomination process has thrown up a passionate debate about the nature of money, and particularly whether it is 'sound' or not. Voters are frustrated and fearful about the economy. Politicians (with no economics training) are arguing that in these uncertain times we need a currency backed by something 'real' like gold. This seems oddly backward-looking in the era of the internet. It begs a question: what sort of money do we need to fuel the economy of the 21st century?
Many of us are returning from the holiday break newly resolved on self-improvement – give up this, lose that, do better at the other thing. APCA too is resolved on self-improvement. Back in August 2011, we gave a public commitment to reform APCA’s own governance arrangements so as to make it a fit vehicle for more inclusive, stronger self-governance of the payments system. This is currently a hot topic for the Reserve Bank, and has been one for APCA for quite some time as well. So, next month, in February, we hope to be talking about a new model for how APCA works. This has to fit in with the views and needs of many different people and organisations, not least the public policymakers, so we know it probably won’t be a short conversation. But we hope it will be a successful one.