MONEY AND THE PAYMENTS SYSTEM

The payments system supports trade and commerce in a market economy. Notes and coin are one means of payment. Liquid balances held at financial institutions are also available potentially for transactions needs, under cheque and other forms of transfer facilities, and thus add to the money supply.

From 1 July 1998, a new financial regulatory framework came into effect in response to the recommendations of the Financial System Inquiry (Wallis Committee). Under these arrangements, the Reserve Bank has stronger regulatory powers in the payments system in accordance with the Payments Systems (Regulations) Act 1998 (Cwlth), exercised by a Payments System Board within the Bank.


MONEY

Australia has a decimal system of currency, the unit being the dollar, which is divided into 100 cents. Australian notes are issued in the denominations of $5, $10, $20, $50 and $100 and coins in the denominations of 5c, 10c, 20c, 50c, $1 and $2. Notes for $1 and $2 denominations were replaced by coins in 1984 and 1988 respectively, and 1c and 2c coins ceased to be issued from 1 February 1992. Table 27.33 shows the value of notes on issue on the last Wednesday of June. Table 27.34 shows the value of coin on issue at 30 June.

27.33 VALUE OF AUSTRALIAN NOTES ON ISSUE—Last Wednesday in June
	2007	2008	2009	2010	2011
	$m	$m	$m	$m	$m
$5	591	615	646	673	731
$10	896	919	956	983	1 010
$20	2 834	2 740	2 659	2 653	2 796
$50	19 228	20 141	23 731	23 711	24 287
$100	16 720	17 700	20 067	20 740	21 234
Total	40 269	42 115	48 059	48 759	50 059
Source: Reserve Bank of Australia.

27.34 VALUE OF AUSTRALIAN DECIMAL COIN ON ISSUE—30 June
	2006	2007	2008	2009	2010
	$m	$m	$m	$m	$m
1c	31	31	31	31	31
2c	49	49	49	49	49
5c	174	181	186	192	198
10c	170	180	188	195	203
20c	265	278	292	308	323
50c	368	384	399	414	429
$1	653	682	723	754	781
$2	962	1 028	1 113	1 204	1 277
Total	2 671	2 812	2 980	3 149	3 291
Source: Royal Australian Mint.

MONEY SUPPLY MEASURES

The money supply is the value of financial instruments within a specific economy that are available for purchasing goods or services. The Reserve Bank of Australia (RBA) defines the money supply as the amount of cash held by the public plus deposits with specified financial institutions. The total money supply within an economy can consist of various financial instruments (including currency, demand deposits and various other types of deposits). Monetary aggregates can be created by adding or grouping these various financial instruments. Monetary aggregates range from the narrowest category, money base, through to the widest category, broad money, with other measures in between. The money supply is important to economists trying to understand how policies will affect interest rates and growth. Monetary policy is the process by which the Reserve Bank of Australia (RBA) manages the money supply to achieve specific goals.

The monetary aggregates common to the Australian economy are as follows:

• Money base – comprises holdings of notes and coin by the private sector, deposits of banks with the Reserve Bank, and other Reserve Bank liabilities to the private sector. It is also often referred to as 'narrow money' or 'M0'. It is the most liquid measure of the money supply.
• M1 – is defined as currency plus bank current deposits from the private non-bank sector. This measure is used by economists trying to quantify the amount of money in circulation. The M1 is a very liquid measure of the money supply, as it contains cash and assets that can quickly be converted to currency.
• M3 – is defined as M1 plus all other Authorised Deposit-taking Institution (ADI) deposits from the private non-bank sector plus certificates of deposit issued by banks less ADI deposits held with each other.
• Broad money – is the widest definition of money published by the Reserve Bank of Australia (RBA). Broad money is defined as M3 plus borrowings from the private sector by non-bank financial intermediaries (including cash management trusts) less their holdings of currency and bank deposits. This measure is generally used to estimate the entire supply of money within an economy.

The money supply under each of these measures at 30 June is shown in table 27.35.

27.35 MONEY SUPPLY MEASURES—30 June
	2007	2008	2009	2010	2011
	$m	$m	$m	$m	$m
Money base	43 735	46 466	53 388	53 623	54 596
M1	225 976	234 194	244 139	242 019	267 218
M3	869 457	1 035 301	1 177 277	1 227 921	1 339 922
Broad money	960 765	1 120 428	1 245 140	1 269 469	1 364 221
Source: Reserve Bank of Australia.

PAYMENTS SYSTEM

Following recommendations by the Financial System Inquiry, the Payments System Board was established within the Reserve Bank in July 1998. The Payments System Board has responsibility for determining the Reserve Bank’s payments system policy, under the powers set out under the Payment Systems (Regulation) Act 1998 (Cwlth) and the Payment Systems and Netting Act 1998 (Cwlth). The Reserve Bank also has responsibility for oversight of the stability of clearing and settlement facilities under the Corporations Act 2001 (Cwlth).

The payments system in Australia has changed significantly in recent years. In part, this has been a response to technological change and consumer behaviour. On average, there are at least 15 million non-cash payments made in Australia each day, the overwhelming majority of which are electronic payments.

Table 27.36 shows the number of points of access to the payments system. Branches are access points staffed by employees of financial institutions. Agencies are staffed by other than employees of financial institutions such as storekeepers, and exclude school agencies and Bank@Post agencies. Bank@Post (previously called giroPost) provides a limited range of services at Australia Post offices on behalf of participating financial institutions. Electronic points of access include ATM and electronic funds transfer at point of sale (EFTPOS) terminals.

27.36 POINTS OF ACCESS TO THE AUSTRALIAN PAYMENTS SYSTEM—30 June
		2007	2008	2009	2010	2011
Branches
	Banks	5 264	5 398	5 504	5 544	5 588
	Building societies and credit unions	1 263	1 240	1 172	1 167	1 173
Bank@Post (giroPost)		3 301	3 305	3 302	3 291	3 261
ATMs		25 681	25 658	27 108	28 764	30 154
EFTPOS terminals		597 063	658 033	669 165	712 434	734 380
Source: Australian Prudential Regulation Authority; Australian Payments Clearing Association Limited.