In an era of digital wallets and tap-and-go payments, the term lawful money might sound like an old relic. Yet, in 2025, its definition and application continue to shape how Australians use, save, and spend. As policy makers respond to the rise of digital assets and the decline of cash, understanding lawful money is more relevant than ever—especially as the Reserve Bank of Australia (RBA) explores new frontiers in currency.
What Is Lawful Money in Australia?
Lawful money refers to currency that is legally recognised by the government as valid for meeting financial obligations and settling debts. In Australia, this traditionally meant physical banknotes and coins issued by the RBA and the Royal Australian Mint. However, the legal landscape is shifting as digital transactions become dominant and the government considers new forms of central bank digital currency (CBDC).
- Physical Currency: Australian banknotes and coins remain legal tender under the Currency Act 1965 and the Reserve Bank Act 1959.
- Bank Deposits: Electronic money held in authorised deposit-taking institutions (ADIs) is commonly accepted as lawful money for practical purposes, though technically it is a claim on lawful money rather than the currency itself.
- Digital Innovations: The RBA’s 2025 pilot of the eAUD—a potential Australian CBDC—could soon expand the definition of lawful money, especially for government payments and settlements.
While cryptocurrencies like Bitcoin and Ethereum are popular for investment and transactions, they are not classified as lawful money. They don’t carry the status of legal tender, though certain digital payment methods (e.g., PayID, BPAY) are widely accepted in commerce.
2025 Policy Updates: From Cash to Central Bank Digital Currency
Recent years have seen significant policy shifts affecting the status and practicality of lawful money in Australia:
- Cash Use Declining: According to the RBA’s 2024 Payments System Board report, less than 10% of in-person retail payments are now made with physical cash—a historic low.
- Digital Wallets Rise: Over 60% of Australians made at least one payment with a digital wallet in 2024, with this trend expected to continue in 2025.
- RBA eAUD Pilot: The RBA’s 2025 pilot of a central bank digital currency (CBDC), dubbed the eAUD, is being trialled for wholesale and select retail transactions. If adopted, eAUD could be declared lawful money for certain types of payments, including government benefits and tax settlements.
- Anti-Money Laundering (AML) Measures: Updated AML/CTF regulations in 2025 require more rigorous reporting for cash transactions above $8,000, down from the previous $10,000 threshold.
These changes are not just technical. They impact how businesses accept payments, how individuals settle debts, and how the government delivers benefits. For example, some government agencies now disburse welfare payments directly to digital wallets, though cash remains an option for those who prefer it.
Real-World Implications: Everyday Money Decisions
Understanding lawful money is not just for lawyers or policy makers—it affects Australians in their daily lives. Here’s how:
- Debt Repayment: Creditors cannot refuse payment in lawful money for debts denominated in Australian dollars, though practical limits apply (e.g., limits on coins per transaction).
- Business Acceptance: While businesses must accept lawful money for debts, they can set payment preferences for day-to-day transactions, such as card-only or digital payments, provided this is clear to customers before purchase.
- Digital Wallets and Transfers: Most digital wallet payments are ultimately settled in lawful money (i.e., Australian dollars) via the banking system, even if the payment method feels entirely digital.
- Travel and Remittances: Australians sending money overseas must use recognised financial channels to ensure funds are accepted as lawful money in the recipient country, especially as global AML rules tighten.
As the RBA’s eAUD pilot progresses, Australians may soon have a new way to hold and transact in lawful money—directly on their phones, without an intermediary bank. But for now, banknotes, coins, and regulated digital payments remain the backbone of Australia’s lawful money system.
The Future of Lawful Money: What to Watch
Looking ahead, several trends could redefine lawful money in Australia:
- Expansion of eAUD: If the CBDC pilot is successful, expect broader eAUD adoption and possible legislative updates to enshrine its status as lawful money.
- Reduced Role of Cash: As more retailers and government agencies shift to digital payments, the practical use of cash as lawful money may diminish further—though its legal status will remain for the foreseeable future.
- Global Harmonisation: Australia is coordinating with international partners to ensure its definition of lawful money aligns with global standards, especially for cross-border payments and anti-fraud measures.
The concept of lawful money is evolving, but its core remains: it’s the currency you can rely on to settle debts, pay taxes, and conduct daily business in Australia. In 2025, that increasingly means digital dollars, but the law still stands behind every coin and note in your pocket—and soon, perhaps, behind a digital token on your phone.