Australian SMES Hit Hardest by Fake Currency

Counterfeit currency is an increasing threat, with small businesses such as restaurants and supermarkets among the hardest hit according to a Reserve Bank of Australia (RBA) report.

Small business operators with tight margins can see a day’s work lost because payments have been made with forgeries, said the RBA. Often it is a low income earner, less likely to use a credit card, who is the loser.

While the level of counterfeiting activity seen in Australia is relatively low, the potential costs to society from counterfeiting are non-trivial,” said the study, entitled ‘The Cost of Currency Counterfeiting’.

So far the threat has been successfully contained in Australia. Figures for 2013 show that fake noted worth A$1.2m were detected, amounting to 16 out of every one million notes minted. The cost per Australian was five cents.

The RBA contrasts the figures for counterfeiting in the Eurozone, where it amounts to A$44m or 13 cents per head of population. Europe’s biggest victim of fake cash is the United Kingdom, where counterfeits worth A$19m were detected, but because of the spread of the bills – 230 for every one million legitimate ones – the cost to citizens was A$2.30.

In Australia 26.6% of fakes were detected in supermarkets; 20% in restaurants, cafes and other eateries; and 11% in post offices.

The RBA report comments that “demand for banknotes is found to decline following a counterfeiting shock, consistent with a loss of confidence in the currency”.

“The stock of bank deposits and the stock of credit card debt are found to increase, which is consistent with the public substituting cash for other payment methods.

“Using separate data on the cost of making payments, we examine a scenario where cash and electronic card activity follows the response functions estimated by our structural model. This scenario suggests a total increase of A$7.0min social costs in response to a total increase in counterfeiting of around A$140,000 spread over a ten-year period.

“There is substantial statistical uncertainty surrounding the estimates and so they should be interpreted with caution. Even so, the results suggest that there are significant pay-offs from efforts to prevent and deter counterfeiting activity in Australia.”

“The data suggest that businesses detect more counterfeits than the general public in Australia,” said the RBA report.

“Of the counterfeits detected in these data in 2013, the general public detected approximately 10%, businesses detected around 34%, the RBA, banks and other cash management companies detected another 32% …

“The impact of fraud loss from counterfeiting can be a significant cost for some agents in the economy. Low-income households use cash more than other payment methods and could be exposed to fraud losses from counterfeiting more than other households.

“For low-margin businesses, it is possible that the loss from receiving a counterfeit could exceed daily profits. For example, as highlighted by the Bank of Canada, grocers operating on margins of one to two per cent would have to sell up to C$5,000 worth of goods to recoup the loss from accepting a single C$50 counterfeit.”

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