Reserve Bank of Australia Annual Report – 2007 Business Services

The Reserve Bank provides a range of business services to other institutions in the Australian financial system, to the Australian Government and some of its agencies, and to other central banks and international bodies. Services include: facilities for Australian dollar real-time settlement for high-value transactions; Australian dollar exchange settlement facilities; and facilities for transactional banking, custody, registry and associated services. In addition, the Bank manages the supply of Australian dollar banknotes to participants in the cash distribution network.

Most of these services fall within the core activities of central banks. Some services fall outside this core however, namely the transactional banking and registry services provided to Australian government agencies. These services are provided on a commercial basis in line with the Australian Government's competitive neutrality guidelines. This ensures that these services are provided on a comparable basis to similar services offered by commercial banks and other private-sector organisations.

Settlement Services

The Reserve Bank owns and operates the Reserve Bank Information and Transfer System (RITS), a real‑time interbank payment and settlement service central to the operation of Australia's financial system infrastructure. It is accessed by around 60 Australian licensed banks and other institutions approved by the Reserve Bank to operate an Exchange Settlement Account (ESA).

Payments between these institutions are settled in RITS across respective ESAs; about 90 per cent, by value, is settled on a real-time gross settlement (RTGS) basis. All wholesale debt and money market transactions, Australian dollar legs of foreign exchange transactions and a range of time-critical customer payments are settled in this manner.

The number and value of RTGS transactions has risen in each financial year since the implementation of RTGS in Australia in June 1998. In 2006/07, the average number of RTGS settlements rose by 8.3 per cent to around 27,000 each day. Total average values settled rose more rapidly, by 15.8 per cent to $168 billion. On a peak day (such as the end of financial year or following a public holiday), the number and value of transactions settled is normally 50–60 per cent higher than on a typical day. In 2006/07, the highest daily value of transactions was $260 billion, on 29 June 2007.

Graph showing RTGS Transaction Values
Graph showing RTGS Transaction Numbers

In addition to RTGS payments, RITS settles two batches of netted interbank payments each day. One relates to low-value payments (cheque clearings, direct entry credits and debits, and retail electronic payments originating in systems such as EFTPOS), which are cleared overnight and settled at 9:00 am. The other batch settles net positions for equity transactions on the Australian Stock Exchange, which are first cleared through the Exchange's electronic settlement system, CHESS, before the net payments are settled over RITS. In November 2006, settlement of the CHESS batch migrated to a new batch settlement facility. This facility allows approved batch administrators for nominated (non-RTGS) payment streams to submit batches of netted interbank payments to RITS, by SWIFT message or manual entry, at any time during the business day.

The batch settlement facility is part of a broader Reserve Bank program to upgrade the RITS technical architecture and to enhance its core business functionality. A key element of the RITS evolution program is the migration to a modern browser-based user interface, which was completed by all external users during 2006/07. The new interface has provided these users with improved access to information, increased efficiency of RTGS payment management and extremely high security standards through the use of digital certificates on hardware tokens. The Reserve Bank has introduced RITS user forums to obtain feedback on use of the new interface and suggestions for improvement. Over the next two years, major milestones in the RITS evolution program will include the upgrade of hardware and software platforms and the use of additional liquidity optimisation features.

Settlement services are also provided for banknote lodgements and withdrawals by commercial banks and for high‑value transactions undertaken by the Reserve Bank and its customers, including the Australian Government and overseas central banks and official institutions. At the end of June 2007, 37 central banks and official institutions overseas were using the settlement and safe custody services provided by the Reserve Bank to settle their Australian dollar transactions.

The criticality of these operations dictates the need for an extremely high level of contingency planning to ensure the continued availability of RITS and other settlement services provided by the Reserve Bank. The technical infrastructure supporting these services was strengthened during 2006/07 by the commissioning of new data centres at Head Office and at its new business resumption site. In the event of an operational incident affecting the Reserve Bank or ESA holders using RITS, good communication arrangements are also very important. In 2006/07, the Reserve Bank trialled a new facility to allow automated e-mail and telephone communications with RITS members. It is expected that this facility will be available for external communications in the second half of 2007.


The Reserve Bank provides banking and related services to the Australian Government, the Future Fund Board of Guardians, the Communications Fund and a number of overseas central banks and other official institutions. It also provides transactional banking services to around 90 government agencies. The services provided to these government agencies are focused on payments and bill collection services, and are provided on a commercial basis in line with the Australian Government's competitive neutrality guidelines. A number of commercial banks also provide transactional banking services to government agencies.

As the core banker to the Australian Government, the Reserve Bank maintains a group of accounts, called the Official Public Accounts (OPA) Group, in which the Commonwealth's at-call cash balances are held. It also provides the Government with a term deposit facility for investment of its cash reserves and a strictly limited short-term overdraft facility to cater for occasions where there is an unexpected demand on Commonwealth cash balances. These broad arrangements have been established under an agreement with the Department of Finance and Administration. The Australian Office of Financial Management (AOFM) has day-to-day responsibility for ensuring there are sufficient cash balances in the OPA Group and for investing excess Commonwealth funds in term deposits at the Reserve Bank.

The Reserve Bank has also established term deposit investment facilities for other government entities, including the Future Fund Board of Guardians and the Communications Fund, based on the term deposit service it provides to the Australian Government. The Bank has also agreed to provide a debt securities custodian service to the Communications Fund, which is managed by the AOFM under a delegated authority from the Minister for Communications, Information Technology and the Arts and the Minister for Finance and Administration. Securities held by the Reserve Bank on behalf of the Communications Fund are held in Austraclear, a debt securities settlement system owned by Austraclear Limited (a wholly owned subsidiary of the ASX Ltd). Transactional banking services offered by the Reserve Bank include the provision of direct entry payments, high-value payments settled through RITS and cheque payments. The Bank's larger customers access these services through direct link arrangements, while smaller customers use ReserveLink, the Bank's desktop banking facility. During 2006/07, the Bank processed 256 million direct entry payments, 18 million cheques and around 5,100 high-value transactions on behalf of its customers.

The Reserve Bank provides its government agency customers with access to a number of bill collection services, including BPAY©, over-the-counter collections at Australia Post offices and card-based collection services via telephone and the internet. It also offers an overseas banking service, which enables its customers electronically to request overseas payments to be made via cheque, electronic funds transfer (wires) and direct entry payments. Overseas cheque and wire payments can be made in over 100 currencies, while overseas direct entry payments can be initiated in the local payments systems of 24 countries. These overseas direct entry payments are initiated by Centrelink to recipients of Australian government pensions who live abroad.

An internet-based service delivery system, known as RBANet, allows agencies to initiate account and transaction enquiries, perform statistical analysis of transaction activity at aggregate and account levels and manage the status of unpresented cheques. All of the Reserve Bank's proprietary banking systems are supported and developed by a dedicated in-house team of IT specialists. This, along with the specialised nature of the Reserve Bank's transactional banking services, allows the Bank to respond quickly to the needs of its government agency clients.

During the year, three of the Bank's client agencies market tested their transactional banking services. In all cases, the Bank was successful in retaining their business. A fourth agency has market tested telephone and internet bill payment services, with the result yet to be announced.

Earnings after tax in 2006/07 for the Reserve Bank's transactional banking services were $2.7 million, compared with $2.9 million the previous year.


The Reserve Bank provides registry services to the Australian Government and a number of official foreign institutions which have Australian dollar debt programs. In common with other registry operators, the services provided to clients include registration of new issuance, ongoing maintenance of ownership records, distribution of interest payments and redemption of securities at maturity. Additional services that are specific to the Commonwealth Registry include management and encashment of bearer securities; maintenance of records relating to Commonwealth Government securities (CGS) unclaimed monies; provision of reports to the AOFM summarising transactions arising from its CGS lending facility; and undertaking historical searches.

The Reserve Bank also offers a small-investor facility using its own CGS holdings, which enables retail investors to access CGS. Information relating to the small-investor facility, including indicative buying/selling prices, is available on the Bank's website.

Because wholesale financial market participants settle their CGS trades electronically in Austraclear, the level of transaction activity in the Reserve Bank's registry is quite low and consists mainly of small-investor activity. Earnings after tax for the CGS registry business in 2006/07 were $0.1 million, the same as the previous year.

Note Issue

The Reserve Bank's note issue role is to ensure that the Australian public maintains its confidence in the nation's currency. This role involves three main responsibilities, namely:

  • meeting the public's demand for currency through the issue and redemption of banknotes;
  • maintaining a high quality of banknotes in circulation, including controlling the quality of new banknotes, evaluating banknotes returned from circulation and destroying banknotes no longer fit for circulation; and
  • conducting research into and development of banknote designs and security features.

New Banknote Purchases

The Reserve Bank took delivery of 245 million new banknotes from Note Printing Australia in 2006/07, up from 220 million the previous year. This consisted of 51 million $5 banknotes, 42 million $10 banknotes, 80 million $20 banknotes and 72 million $50 banknotes. As has been the case for a number of years, the Reserve Bank did not purchase any new $100 banknotes and continues to run down the stock acquired in 1999 as part of its contingency preparations for Y2K.

Graph showing Number of New Banknotes Purchased

Banknotes on Issue

At end June 2007 there were 902 million banknotes on issue, with a value of $40.3 billion. This is equivalent to 43 banknotes worth about $1,900 for every Australian. By both value and number, the high denomination banknotes comprised the majority of banknotes on issue. Specifically, the $50 banknote accounted for nearly half of the value of banknotes on issue and 43 per cent of the number of banknotes on issue, while the $100 banknote accounted for 42 per cent of the value and 19 per cent of the number of banknotes on issue.

Value of Banknotes on Issue
$ million
At End June $5 $10 $20 $50 $100 Total(a) Total (per cent
of GDP)
2001 431 662 2,014 12,055 11,961 27,168 3.9
2002 530 791 2,789 14,718 13,057 31,930 4.3
2003 515 759 2,510 14,918 13,426 32,173 4.1
2004 533 791 2,533 15,941 14,224 34,022 4.0
2005 539 837 2,584 16,740 14,924 35,624 4.0
2006 572 857 2,690 18,044 15,903 38,066 3.9
2007 591 894 2,846 19,228 16,730 40,289 3.9*
(a) Includes $1 and $2 banknotes remaining on issue.
* Estimate of GDP for 2006/07.
Graph showing Value of Banknotes on Issue

Over the past two decades, the growth in the value of banknotes in circulation has largely matched the nominal growth of the economy. This stability is consistent with that experienced in many other developed countries. Despite this, the total value of the higher-denomination banknotes, namely the $50 and $100, has increased as a share of GDP at the expense of some lower denominations. This partly reflects changes in the denominations withdrawn from ATMs, with the $50 increasingly replacing the $20 in many machines. In the case of the $100, which is only beginning to be issued from ATMs, its relative growth since its inception in 1984 is attributable to its role as a store of wealth.


Working stocks of surplus banknotes that are owned by commercial banks are held in approved cash centres (ACCs) located throughout Australia. Commercial banks draw on these stocks when they need additional banknotes, and deal directly with each other in order to manage short-term variations in their individual stocks. When overall demand is unable to be met from stocks held at ACCs, the Reserve Bank distributes Australian banknotes in wholesale quantities to the commercial banks through the National Note Processing and Distribution Centre (NNPDC), located within Note Printing Australia at Craigieburn.

Throughout the year, banknotes deemed to be unfit by the commercial banks are returned to the NNPDC and processed through high-speed sorting equipment to confirm their quality and authenticity. Returned banknotes that are deemed to be fit by the NNPDC are reissued. Of the 219 million banknotes returned to the NNPDC during 2006/07, 123 million were identified as being unfit and were destroyed.

During 2006/07, the Reserve Bank issued 267 million banknotes from the NNPDC, with a face value of $9 billion. Of these banknotes, 114 million were previously circulated banknotes, reissued after processing, while 153 million were new banknotes. The remainder of the delivered new banknotes were added to the Reserve Bank's inventories.

Banknote Quality

The Reserve Bank aims to achieve a high quality of banknotes on issue. This ensures that the public can more easily detect counterfeit banknotes and that banknotes remain appropriately fit for use, particularly through the banknote accepting and dispensing machines used throughout the community. Achievement of this goal requires that the Reserve Bank issues high quality new banknotes and that unfit banknotes are returned to the NNPDC for destruction. As such, in the process of identifying unfit banknotes, the commercial banks and armoured car companies play an important role in achieving this quality objective.

With this objective in mind, the Reserve Bank reimburses commercial banks the cost associated with the return of unfit banknotes and banknotes required as part of quality assessment and cleansing programs. The arrangements with the commercial banks and armoured car companies were further enhanced in September 2006 with the introduction of the Note Quality Reward Scheme (NQRS). The NQRS offers significant incentives for commercial banks and armoured car companies to achieve a high standard of quality for banknotes stored at ACCs, while at the same time giving participants the freedom to choose the type of sorting equipment and infrastructure that best suit their particular requirements.

As part of the NQRS, banknote quality is assessed regularly from samples of banknotes selected by Reserve Bank staff from the working stocks of banknotes held at ACCs. These samples are sent to the NNPDC where they are processed through high-speed banknote processing machines and assigned a quality score. Based on the quality score achieved, a reward or penalty is then applied. In order to encourage changes in fitness sorting behaviour and/or the infrastructure in all ACCs throughout the country irrespective of their size and location, a framework of minimum reward/penalty thresholds has been established.

Photograph: Staff in Note Issue Department, Martin Bowerman and Jodie Worby, are shown preparing work in advance of a visit to approved cash centres to select note samples under the Note Quality Reward Scheme (NQRS). The Reserve Bank established the NQRS with commercial banks in September 2006 as a means of improving the quality of notes in circulation.
Staff in Note Issue Department, Martin Bowerman and Jodie Worby, are shown preparing work in advance of a visit to approved cash centres to select note samples under the Note Quality Reward Scheme (NQRS). The Reserve Bank established the NQRS with commercial banks in September 2006 as a means of improving the quality of notes in circulation.

Although sampling commenced during the trialling of the NQRS arrangements prior to September 2006, the first payment was made only in January 2007, based on banknote quality scores received in December 2006. Encouragingly, data collected to date show an improvement in banknote quality.

Damaged Banknotes

Some banknotes become damaged in circulation beyond the normal levels of wear and tear and become unsuitable for sorting through high-speed processing equipment. The Reserve Bank has a policy of paying value for severely damaged banknotes that can be authenticated as genuine Australian banknotes, subject to the amount of the banknote that remains recognisable. Although commercial banks can assess damaged banknotes and pay the assessed value for them, all damaged banknotes are returned to the NNPDC for final assessment and destruction. Under this policy, most damaged banknotes receive full value. However, where a large piece of a banknote is missing, only the appropriate partial value is paid.

During 2006/07, the NNPDC assessed around 28,500 banknote claims, and paid value of around $3 million. The number of claims was only slightly higher than last year, while the value of claims paid was lower.

Counterfeiting in Australia

The rate of counterfeiting in Australia remains very low by world standards. In 2006/07, there were about six counterfeit banknotes passed per million banknotes in circulation. By a considerable margin, the most commonly counterfeited denomination was the $50 banknote, with around 10 counterfeits detected for every million genuine $50 banknotes in circulation. In contrast, counterfeits of the other Australian banknote denominations represented less than a third of the total counterfeits by value and number.

Counterfeit Banknotes in Australia
$5 $10 $20 $50 $100 Total
Number 50 274 722 3,920 580 5,546
Value ($) 250 2,740 14,440 196,000 58,000 271,430
Parts per million 0.4 3.1 5.1 10.2 3.5 6.2

Over the past few years, counterfeiting rates have remained considerably lower than a decade ago and below the levels of counterfeiting experienced in other developed nations. Importantly, there is little evidence of ‘professional’ counterfeiting activity in Australia and most counterfeits are relatively crude, printed on paper using widely available reprographic technologies. This, combined with the relatively low counterfeiting rates, suggests that printing banknotes on polymer substrate continues to be a significant inhibiting factor. Nonetheless, the Reserve Bank takes all counterfeiting incidents seriously even though the level of counterfeiting is currently quite low. In particular, the Bank conducts extensive research and development into improving the security of Australia's banknotes and works with law enforcement agencies in Australia and overseas to monitor and combat emerging counterfeiting trends.


Prior to February 2007, the Reserve Bank sold Australian banknotes that were of numismatic interest through the Royal Australian Mint. Largely reflecting the prospect of increases in administrative charges to the public, these arrangements were terminated on 28 February 2007. In its place, the Bank will provide collectors and dealers with access to similar numismatic products through an annual public auction. Following a tender process, the Bank has appointed a company to conduct a public and internet auction of first and last prefix banknotes and to sell uncirculated banknotes in October/November 2007. The Reserve Bank continues to offer uncirculated banknotes for sale through its Sydney and Canberra branches.