Yahoo Finance ‘Gone mad’: Economist floats ‘crazy’ idea of cash with expiry dates
As the government finalises the details on its multi-billion dollar stimulus package, one economist has floated an interesting idea: cash with an expiry date.
On Tuesday morning, Stephen Koukoulas – independent economist and former economic senior adviser to then-Prime Minister Julia Gillard – tweeted about a “policy I like”.
“Issue banknotes with a use by date,” he said.
“$20 note: ‘This note will cease to be a means of exchange after 31 December 2020.’ Incentive to spend it and circulate it is high.”
One policy I like:
Issue banknotes with a use by date:
$20 note: "This note will cease to be a means of exchange after 31 December 2020."
Incentive to spend it and circulate it is high— Stephen Koukoulas (@TheKouk) March 9, 2020
Koukoulas has long lobbied the government to inject cash into the economy, arguing Aussies need a $5 billion handout, with a further $5 billion every quarter until the fallout from coronavirus ebbs.
“For the most powerful effect, one that will avoid a recession, policy must be skewed to the distribution of money to low and middle income earners because they have a high propensity to spend that money,” he said.
“Given that the value of economic output is around $500 billion per quarter, a cash boost of at least $5 billion per quarter will add 1 per cent to growth, other things being equal.”
‘Horrible’
However, Twitter users were quick to slam the idea.
“This can’t be real,” tweeted political cartoonist Jon Kudelka.
this is a terrible idea
— Jack Norton (@JackNorton8064) March 9, 2020
mr koukoulas, might i interest you in a similarly sound investment pic.twitter.com/Dyv1BxC7eT
— wheels (@wheelswordsmith) March 10, 2020
“How about wallet inspectors, to make sure everyone is spending their money?” asked Nick Schadegg.
Sorry Kouk this is a horrible idea. What vendor is going to want to hold on to or accept an expiring bank note? Or do certain vendors get preference to be able to exchange at the end of the plan? With our current government I could only see this leading to blatant corruption.
— wholesome fishing bf (@ZacSupreme) March 9, 2020
Kouked
— Simon Hutchinson (@ApeGotFire) March 10, 2020
Even Labor MP Brian Mitchell jumped in with a vision of what it would look like when the deadline expires.
Person who gets it in their change at Woolies at 4.59pm 31 December 2020 sweats nervously....
— Brian Mitchell MP (@BrianMitchellMP) March 10, 2020
Who would accept one of these on December 30 if it becomes worthless two days later?
— steve (@steveofthefera) March 10, 2020
What other economists said
University of Adelaide economics lecturer Steven Hail dismissed the idea, dubbing cash a “government liability”, and said it would also adversely impact more vulnerable Australians.
Currency is a government liability. Such bank notes would be a form of default. Secondly, it is likely to be the elderly - particularly less well off elderly - who end up holding such notes, at the point of default. We don't need gimmicks - just sensible fiscal policy.
— Steven Hail (@StevenHailAus) March 9, 2020
But speaking to Yahoo Finance, AMP Capital chief economist Shane Oliver said that the idea was not new.
“I was advocating something similar last year. Stimulus payments to households with a use buy date makes sense,” he said. “It would force a bigger proportion of it to be spent soon which is what we need.”
Motley Fool Australia chief investment officer Scott Phillips said: “Not sure about expiring banknotes, but I'm 100 per cent with him on stimulus!”
Could it actually work?
Speaking to Yahoo Finance, Koukoulas laughed off the comments and said there was more to the ‘mad’ theory than met the eye.
“A tweet doesn’t encapsulate everything,” he said. “That said, it is a means to get people to spend money.
“If you’ve got that sitting in your wallet you're not going to want to hold it when cash comes to its expiry date,” he explained.
The bank notes would actually be depositable. “As a means of exchange, it becomes worthless, but you've got to deposit it before the 31st, or whenever it expires.”
“You can bank it, so I think that’s an important thing people missed in the Tweet,” he said. “It’s a way of ensuring people don’t save the money.”
Bank notes with use-by dates would give Australians extra incentive to spend. The Morrison government’s $158 billion tax cuts were designed to boost consumer spending – but instead, Aussies either saved it or used it to pay bills, mortgage or debt, according to a Money.com.au study.
“You can't force people to spend if they don't want to. But if you've got money that's got a use by date, it’s a bit like a gift card,” Koukoulas said.
“It’s not something you do every day of the week, but when the economy is at risk as it is right now, you need a few crazy ideas from time to time.”
The “crazy idea” could also potentially stem the black economy. In a Quora thread, Vice President of Hong Kong’s Bank of America Keshav Choudhary said government taxation would become “very efficient” and it would mean “almost no tax evasion”.
Has it ever been done before?
Koukoulas said the idea of cash with use-by dates was “spoken about” when the Bank of Japan dropped their interest rate to 0 per cent in February 2009.
“People hoarded cash. They literally did stick it under the mattress, and they weren't spending. And this is when the Bank of Japan was literally printing money,” Koukoulas said.
But no, the world has never seen this policy before.
“It’s one of those economic theories that have popped up in the past.”
But with the Reserve Bank of Australia cutting interest rates to an all-time low of 0.5 per cent, and further cuts slated for the future, the idea might not seem as absurd.
“It’s to stop people in an era of zero interest rates hoarding their cash, i.e. not spending it.”
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