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Wednesday, 30 May 1984
Page: 2195

(Question No. 386)

Senator Peter Rae asked the Minister representing the Treasurer, upon notice, on 4 October 1983:

(1) Has the Treasurer instructed or approved the Reserve Bank's policy on the valuation of torn banknotes upon a diminishing remnant-diminishing value bases; if so, which and why; if not, will the Treasurer take urgent steps to investigate upon what basis the bank is taking this high handed action.

(2) Will such action diminish the confidence of people in paper money and create a tendency for a return to less convenient forms of monetary exchange.

(3) Does this constitute an illegal charge or breach of statutory duty.

Senator Walsh —The Treasurer has provided the following answer to the honourable senator's question:

(1) Section 34 of the Reserve Bank Act 1959-1973 authorises the Reserve Bank, through the Bank's Note Issue Department, to issue, re-issue or cancel Australian notes. As the responsible authority, the Reserve Bank has established certain procedures concerning its obligations in relation to the note issue. These procedures are designed to ensure that the currency is freely available and may be used in the marketplace with confidence. Apart from the matter of giving value against torn or mutilated currency notes, there are other elements that need to be borne in mind in setting rules for the handling of the currency, including the possibility of fraud and the need for all to be careful in their currency dealings.

The basis of payment on claims in respect of mutilated notes submitted to the Reserve Bank is:

(a) full face value is paid if the portion of note presented for payment is two -thirds or more of the note;

(b) half face value is paid if the portion of note presented for payment is about half, but less than two-thirds of the note;

(c) in some circumstances, payment of up to full value will be made against smaller fragments of notes where there is clear evidence of the number of notes involved and where supporting material, for example, ash in the case of claims arising from fire damage, is provided.

The bank expends considerable effort in establishing the value of torn or mutilated currency notes and payments are made on a wide variety of identifiable residue.

(2) No. The methods followed in processing such claims should provide reasonable equity where separate portions of a note that has been accidently segmented may be held by different parties. As well, these procedures seek to prevent over-payment that might occur if full face value were paid against fragments of a note that may have been segmented accidentally, or at times, with fraudulent intent.

The procedures should satisfy, in a practical way, claims against accidental damage, without leaving the Bank open to loss, possibly substantial, on fraudulent claims. However, any set of rules may leave the occasional claimant dissatisfied. It is particularly difficult, for instance, to satisfy a claimant where note remnants have been mutilated beyond recognition, burned or subject to severe corrosive substances. It is common practice around the world for the amount paid to depend on the identifiable proportion of the note. Under the present system relatively few complaints are received from claimants. It might be of interest that during the year ended 30 June 1983, some 2,400 claims were processed by the Bank.

(3) No.