ELDERLY Australians committing welfare fraud on a massive scale are behind the extraordinarily high number of $100 notes in circulation, a former senior Reserve Bank official says.

Yesterday the Herald revealed there are now 10 $100 notes in circulation for each Australian, far more than the more commonly seen $20 notes.

Welfare fraud on a massive scale ... elderly people wanting to get the pension are hiding their income in cash to ensure they qualify for the means-tested benefit, former Reserve official Peter Mair says. Credit:Jessica Shapiro

One popular explanation is that they are used for illegal transactions as part of the cash economy, something the former Reserve official, Peter Mair, rejects as a "furphy".

In a letter to the Reserve Bank governor, Glenn Stevens, dated July 4, Mr Mair laid the blame squarely on elderly people wanting to get the pension and hiding their income in cash to ensure they qualified for the means-tested benefit.