The Federal Government is looking at legislation that would cap cash transactions at $10,000 following the recommendations of Black Economy Taskforce, aimed at reducing the amount of cash in circulation.

The penalty for breaking the limit could include two-year jail sentences and fines of up to $25,200 under the proposed laws.

But paradoxically, at the same time central banks around the world are increasing the amount of cash in circulation.

In the US the International Monetary Fund noted last year that the number of US$100 notes in circulation had for the first time in history, overtaken the number of $1 bills in circulation. The number of $100 bills has doubled since the Global Financial Crisis.

It's a similar story in Australia. The Reserve Bank of Australia has put more than $76 billion worth of polymer banknotes into circulation, of which the vast majority (93 per cent) are $50 and $100 notes.

Critics of the proposed cash ban have included CPA Australia, the Australian Chamber of Commerce and Industry and Pauline Hanson's One Nation.

So, if the continued use of cash is good enough for the central banks and it's still popular with the public, why are governments trying to clamp down on the use of cash?

The triple As of cash

Why are we still so attracted to cash when there are so many easy-to-use cashless options now?

Some would argue that hoarding cash is a consequence of our lingering distrust of the banking system.

Others say that going cashless leaves them more vulnerable to continuous surveillance via a digital record of all their transactions.

Many of us are also wary of the regular "outages" in the electronic transfer of money, either from the telecoms providers or in the banks own IT systems, which prevent us then from using non-cash methods of payment.

Indeed, cash has its own "Triple A" accreditation, of sorts. It is Anonymous, based on the absence of an audit trail. It is still widely Accepted and acts as a fall back if all else fails. It is also Authentic, in that it can be touched, seen and stored for later use.

The RBA Bulletin in March last year reported on a cross country analysis of high denomination notes in circulation. It found that there had been an above average increase in their use in recent years and that the ratio of the value of banknotes in circulation to nominal GDP is currently close to its 50-year peak, at around 4 per cent in Australia.

The RBA recognises that there is a demand for banknotes to be used as a "store of value". This is thought to be particularly important during times of significant financial instability and applies especially to high denomination banknotes. This might help to explain why there are reckoned to be 14 $100 notes in circulation for every Australian in the current population.

This value is boosted by the recent reductions by the RBA of the cash rate also play a part in the continuing attraction of cash, as a store of value. Why leave your money in a savings account earning a paltry rate of interest, when you can keep it close at hand and use it to reduce your costs, by paying less tax, particularly via avoiding GST in individual to business transactions?

The shadow economy thrives, in part, because of our own behaviours and attitudes. ( Supplied: AFP )

The shadow economy

The Black Economy Taskforce claimed that if citizens were less reliant on cash, then that would help to reduce the so-called "shadow economy", where people avoid electronic transactions for illegal activity or to avoid tax.

Since it's a shadow economy, it's hard to estimate its size. While the Australian Bureau of Statistics estimates its about 1.5 per cent of GDP, the IMF's suggestion that it was between 12 and 13 per cent of Australia's GDP.

Cash is used both then for tax evasion and to evade asset means testing for various social benefits in Australia.

This makes the measurement of the shadow economy inherently difficult and takes us into the realms of behavioural economics and, indeed, personal morality: if others are taking "cash jobs" with impunity, one might begin to think, "well if it's OK for then and it appears to work, why then should I not join in?".

The shadow economy doesn't just thrive because of the value and volume of cash in circulation, aided by the current low interest rates. Our own behaviours and attitudes play a part.

This means it will take more than a cap on cash payments to change our views on cash's Triple A value.

Steve Worthington is an Adjunct Professor at Swinburne University.