Despite the broad use of electronic forms of payment, O'Dwyer warned there are three times as many $100 notes in circulation than $5 notes.
"It does beg the question, 'Why?'" she said.
There are currently 300 million $100 notes in circulation, and 92 per cent of all currency by value is in $50 and $100 notes.
The minister would not rule out the removal of the $100 note, saying it was up to the expert panel to provide recommendations. "There's nothing wrong with cash per se, the issue is when people don't declare it and when they don't pay tax on it," she said.
The taskforce will draw on the experience of countries like France, where the government banned cash payments of more than 1000 euros. "I'm not going to put a limit on what the taskforce will look at," O'Dwyer said.
Liberal Democratic Senator David Leyonhjelm hit out at the proposal, saying "the only people who are distressed by the cash economy are the government and the public servants who want to spend taxes".
"The incentives for a cash economy would be a lot reduced if taxes were a lot lower," he told news.com.au. "It's a reaction to the level of taxes we pay."
Leyonhjelm said Australia was joining a global push to make it harder to engage in the cash economy. "Whether it will succeed or not is a moot point. Carrying two $50 notes instead of a $100 note doesn't seem to be much of a disincentive," he said.
"But with my libertarian hat on, I think the solution is to lower taxes so the incentives to avoid paying taxes are lower."
It comes after a report by UBS recommended Australia scrap the $100 note. According to UBS, benefits may include "reduced crime (difficult to monetise), increased tax revenue (fewer cash transactions) and reduced welfare fraud (claiming welfare while earning or hoarding cash)".
"From the banks' perspective there would likely be a spike in deposits - if all the $100 notes were deposited into banks (ignoring hoarded $50 notes), household deposits would rise around four per cent," the report said.
"This would likely fill the banks' Net Stable Funding Ratio (NSFR) gap and reduce reliance on offshore funding."
India last month demonetised the country's two highest-denomination banknotes in a bid to crack down on "black money", sparking chaotic scenes.
Prime Minister Narendra Modi sent shockwaves through the country by announcing on November 8 all 500 rupee ($10) and 1000 rupee ($20) notes - some 85 per cent of all bills in circulation - would cease to be legal tender within hours.
In a scathing editorial in The Hindu newspaper, former Indian Prime Minister Manmohan Singh said the decision had "shattered the faith and confidence that hundreds of millions of Indians" had placed in their government.
"The vast majority of Indians earn in cash, transact in cash and save in cash, all legitimately," he wrote. "Their daily subsistence depends on their cash being accepted as a medium of valid currency.
"They save their money in cash which, as it grows, is stored in denominations of 500 rupee and 1000 rupee notes. To tarnish these as 'black money' and throw the lives of these hundreds of millions of poor people in disarray is a mammoth tragedy.
"It is the fundamental duty of a democratically elected government in any sovereign nation to protect the rights and livelihood of its citizens. The recent decision by the Prime Minister is a travesty of this fundamental duty."
This week, Venezuela joined suit, with Venezuelans rushing to trade in their 100-bolivar bills after President Nicolas Maduro said he was eliminating the nation's highest currency denomination in an attempt to fight speculation and currency hoarding.
