Currency Conference Review – an Industry in Change

The Currency Conference took part in Mexico City in May 2023. Two sessions were particularly relevant, an overview of cash today and work to ensure cash is resilient.

Changing cash landscape

This session started with a panel of speakers from the 5 Nations group, which consists of the central banks of Australia, Canada, Mexico, the UK and US. In overview cash demand has been growing steadily but surges during times of crisis, the pandemic being a good example. Demand is primarily for store of value notes rather than transaction denominations. Since 2021 the demand for cash has started to fall back.

The 5 Nations have seen a sharp reduction in bank branches and ATMs, making access to cash more challenging, although on paper one would think that most people live within 5 km of an ATM. A range of studies across the 5 Nations show that cash is important, and is perceived to be important, to significant number of people.

The central bank response is to monitor cash use trends, to research cash use, to analyse and invest in infrastructure and to engage with stakeholders to support cash.

Steve Son presented the latest US Federal Reserve consumer payment trend survey findings. Kathleen Young, Executive Vice President and Chief of FedCash® Services, explained how they are adapting to changing payment behaviour. The key being to have flexible, scalable and resilient operations. FedCash is currently investing in new cash sorting capability and capacity, with new sensors and increased automation.

OXXO, part of the FEMSA group, presented on its SPIN card which seeks to bring the unbanked and underbanked into payments, whether using cash or not. Sonect presented its virtual ATM solution that seeks to fill the gap where bank branches, ATMs and post offices are absent.

Access to cash

Recent cash trends in the UK are putting pressure on the wholesale and retail cash infrastructure. Legislative changes have meant that the Bank of England is responsible for wholesale cash while the Financial Conduct Authority looks after retail cash.

The Bank has market oversight, managing the risks to the effectiveness, resilience and sustainability of wholesale cash, and prudential supervision managing risks to financial stability and to maintain confidence in the UK financial system. It laid out the tools it has at its disposal to achieve this.

Cash remains important to many in the UK and so there is a commitment to cash with significant legislative reforms in progress to enable cash to remain sustainable into the future.

In New Zealand, Ian Woolford has the job description at the Reserve Bank of New Zealand (RBNZ) of Director, Money and Cash, reflecting the country’s joined up thinking on the future. In 2018 RBNZ published it Future of Cash paper and in 2021 its Future of Money paper. The problem is clear. Cash is declining steadily, and an unwelcome outcome is happening because of a market failure and the role of incentives.

In 2007 30% of household payments were in cash, today it is 13%. Merchants provide 34% of cash from their tills but pay 69% of the cost of that. Banks account for 56% through their ATMs and pay 29% of the costs. Overall, the cash system costs New Zealand 0.25% of GDP per annum.

The role of cash as a value anchor and for financial inclusion means that cash needs to be maintained. As a result, a redesign of the cash system is underway and cash trials are going on in communities most vulnerable to going cashless.

The redesign is based on four themes:

• Resilience – consolidation on a utility basis, broadening access to wholesale cash, recycling quality standards for the point of sale and a solution for coins.

• Cash acceptance – instigate the remuneration of merchants by banks, mandate merchant cash acceptance.

• Cash access – direct banks to provide cash services at low cost to customers.

• Consumer demand – consumer awareness campaigns.

Resilience

Austria is a high cash usage country with 47% of people holding money at home as a reserve and average wallet holding of €121. The government has developed detailed plans with retail partners about what will happen in an emergency/blackout, for example frozen food will be given away, supermarkets closed on the first day but open thereafter to hand out food bags against cash payments.

For cash, the recommendation is that households should be holding at least €100 per person in small denominations. A ‘cash in any case’ initiative saw 250,000-300,000 envelopes distributed between February and March 2023 from 380 post offices. These envelopes contained tips for emergencies including encouraging cash holdings.

Members of the national parliament have been invited to discuss the status quo of cash, cash supply and acceptance. A Cash Advisory Board consisting of the Board of central bank and the board of commercial banks has been set up to discuss future cash supply, cash infrastructure and the supply of cash in an emergency. A cash information campaign has been set up by the central bank with the Austrian Mint to promote cash on TV, radio and the internet.

Germany’s Bundesbank (BBk) has worked on a resilience business continuity concept for cross-regional and national crises. The concept includes credit institutions, cash in transit companies, retailers, the government and the central bank. An area of focus has been the IT solutions to support information management in a crisis.

Unfortunately, South Africa has current experience of crisis, regarding power shortages. As a result, it has developed a national shut down and start up overview starting with a notification flow chart that takes place in the first four hours of the shutdown. It assumes no transactions in the next four hours and then a period of blackout when assets are secured. In the startup phase connections start to be restored leading to the go live phase when cash is up.

In each phase there are clear roles, responsibilities and actions assigned across stakeholders in the cash cycle.