Australia May Give Regulators Power Over Cash Flow

Australia's top financial regulators are urging the government to approve new powers that would allow them to act if the country’s main cash distributor, Armaguard, collapses. This is intended to safeguard access to physical money, though it could disrupt the industry's balance in a primarily digital economy.

Regulators, including the central bank and Treasury, warn that without federal oversight, Australia’s cash supply could be at risk if Armaguard fails. The company currently handles 90% of the country’s banknote distribution. As more Australians choose digital payments over coins and notes, concerns are growing about how to maintain cash access for people who still rely on it, particularly in remote areas.

The cash transport sector is under pressure as demand for physical money declines sharply. Armaguard recently received an emergency $75 million funding package from major banks and retailers such as Australia Post and Woolworths, following concerns it might shut down. This came after an earlier $50 million support package. Despite this financial support, insiders argue that Armaguard may not be viable in the long term due to rising distribution costs and falling transaction volumes, especially in rural regions.

To avoid serious disruption, the Council of Financial Regulators has proposed giving the government new powers to formally designate critical service providers like Armaguard for special oversight. These powers would allow interventions such as requiring operations to continue, replacing management or transferring assets to a competitor if necessary. This approach is similar to what is used in the UK, where authorities can require banks to maintain cash access even in low-demand areas.

Forecasts suggest that cash usage could drop to 4% of all transactions by 2030, down from 13% in 2021 and 62% in 2010. However, about 1.5 million Australians still rely on cash for everyday needs. These individuals are often older or living in regional communities. Regulators believe that a safety net is essential to protect their access to financial services.

Industry stakeholders are also seeking pricing reforms and clearer service requirements to keep cash distribution running without distorting competition. Consultants have been tasked with determining what profit margin would make the business sustainable and whether it should be taken over by its main clients like banks and retail chains.

While digital payments now cost less to process than cash, the physical cash system remains crucial for many. This infrastructure acts as a reliable backup, so regulators are pushing to secure it through new government powers before a potential crisis occurs.

Source: Australian Financial Review, ABC News (Australia), Armaguard and the Future of Cash in Australia 

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