Households withdrew $4 bn from banks amid GFC panic
Article Category: Demographics
By David Uren and Nicola Berkovic, The Australian, 18 September 2009
HOUSEHOLDS are still hoarding $4 billion in cash that was pulled out of the banks in September and October last year, during what the Reserve Bank has revealed was a panic run.
At the peak of the global financial crisis, the run threatened to exhaust the Reserve Bank's stocks of $50 and $100 notes and it had to print more to meet the extraordinary demand, the bank's annual report released yesterday shows.
"The Reserve Bank responded to a surge in demand for banknotes around the time of the global banking crisis, as some depositors withdrew cash from banks," Governor Glenn Stevens wrote in his foreword to the report.
The financial crisis was a bonanza for the central bank, which raised its profit more than fourfold to a record $6.5bn with most of the surge coming from its intervention in the foreign exchange market when the currency was in free-fall last September and October.
The number of banknotes in circulation normally rises by about 5 per cent a year, but the Reserve Bank says that in the last three months of 2008 there was a 19 per cent surge, lifting the total value of notes in circulation to more than $50bn.
"Developments in global financial markets reduced the public's financial risk appetite. One manifestation of this was that public demand for currency increased as households made large cash withdrawals from financial institutions," the bank's report says.
Although there have been anecdotal reports of increased demand for Armaguard transport of cash in the weeks leading up to the government's guarantee of bank deposits, the Reserve Bank report provides the first measure of the scale of the panic.
"Demand was particularly strong for $50 and $100 banknotes. The value of these banknotes on issue rose by 18 per cent and 14 per cent respectively over the past year."
During the peak of the crisis, the total value of banknotes in circulation soared by 19 per cent to more than $50bn.
The number of bank notes on issue normally rises by about 5 per cent a year. Although demand for notes has eased, the Reserve Bank said the $48bn on issue is still 14.3 per cent higher than it was a year ago.
As well as consumers pulling their money out of banks, the RBA said, the fall in the value of the Australian dollar resulted in tourists and families of students studying in Australia converting more of their foreign currency holdings into Australian dollars.
The Government's first stimulus package also boosted demand for cash when these payments were made in December last year. The Reserve said its holdings of large denomination notes were not sufficient to meet demand so it ordered another $4.6bn in $100 notes and $6.5bn in $50 notes.