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Where’s the money?

  • November 27th, 2009

As the GFC spread panic last year the demand for New Zealand $100 notes shot up. The Reserve Bank happily printed them –  seignorage (the income on the value received in exchange for almost costless bits of paper) is valuable. But weirdly most of them are still out there – they have not come back to be exchanged for interest bearing deposits.

This curiousity was revealed in an aside by Grant Spencer, Deputy Governor of the Reserve Bank on Wednesday evening while addressing the 20th birthday celebration of Paymark. I’m a director and proud of the company that ‘switches’ 75% of New Zealand’s eftpos transactions. He congratulated the people concerned 20 years ago, when our bankers had the foresight to set up New Zealand’s unique collaborative switch model which has given us the highest proportion of cashless retail transactions in the world, with world-leading reliability and security.

Grant explained that as a reserve banker his satisfaction was tempered by the loss of potential seignorage as eftpos made cash less necessary, then noted the silver lining to the financial panic cloud as the Reserve Bank printing presses sped up.

I thought I’d look into it further. The Reserve Bank website provides the figures. They’re not small bickies. The total value of  $50 and $100 notes outstanding as at the last Wednesdays of March 2007 and March 2009 increased by $393,65m. The amount in $50 notes went up $186.82m or 30.54% while the amount in $100 notes went up $206.83m or 14.65%. The amounts in the notes generally used in wallets and pockets scarcely moved.

So where are all those notes? Are our wealthy wallowing like Scrooge McDuck in their counting houses? Are they plumping the mattresses of the Belgian dentists who for years have allowed us to spend more than we earn? Are they padding the tatame of  wizened Japanese grandmothers? Or are they being shredded for rats nests in the walls and under the floors of our own tinny houses and P kitchens?

Perhaps it is  just coincidence  that demand shot up as people began worrying that any bank could fail. But why have they not come back through the banking system?

Comments

Gravatar
  • George
  • November 28th, 2009
  • 2:16 pm

Simply put, the people who own them recognise that cash is king. They can also read figures and recognise the ‘Downturn is over’ as pure bullshit.

Any bank can fail and many will.

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