The Future of the Cash System - Te Pūnaha Moni Anamata

The Reserve Bank’s current priority is to work with the banking and service industries to ensure that the cash system continues to be fit for purpose. Initiatives include reshaping vaulting arrangements, banknote standards, and building towards a sustainable future. We encourage every banking sector participant to consider their role in supporting the needs of their customers, including those who depend on cash for their everyday needs. Ultimately, a more transformational solution might be needed. This section describes this work and progress.

A cash system under pressure from declining cash use

The Reserve Bank has historically been responsible for issuing bank notes and coins on demand. This meant issuing cash to banks, collecting unfit cash, and processing, storing or destroying the cash that is returned to us.

The remainder of the cash system, i.e. the banks’ distribution of cash to the public and the transportation of cash to and from retailers has been held together by a set of informal arrangements and commercial incentives.

The supply of cash to the New Zealand public

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Source: Reserve Bank of New Zealand.

In 2018, as a first step towards addressing the gaps in our legislation regarding cash, the Reserve Bank Act’s purpose statement was amended to focus on prosperity and well-being, and a requirement to issue bank notes and coins to meet the needs of the public was added.

A cash system incurs high fixed costs and depends on a high number of users to keep the per transaction cost of providing cash services low. As the use of cash falls, the per transaction cost increases, causing some cash providers to reduce their services or to introduce or raise fees. This in turn further reduces the number of people who use cash while also increasing the costs to those who rely on it.

In contrast, some debit and credit card schemes generate profitable returns for commercial banks and might present a more favourable service offering for banks compared to cash services.

We acknowledge the efforts of banks to assist many customers in the move to digital payments during COVID-19, as well as the New Zealand Bankers’ Association coordinated effort for the upcoming trial of regional banking hubs.

However, we have also witnessed some banks fast-tracking planned reductions in cash services during the lockdown. These included reducing operating hours and cash access points; changes which have made it harder for individuals and retailers to transact in cash.

Reduced access to cash has been particularly felt by regional New Zealand as bank-owned ATMs and branches have become more concentrated in urban centres and cash services have been pulled out of regional areas.

Cross-border payments are also becoming more difficult for some. Many people sending money to and from the Pacific islands tend to rely on cash to initiate and complete their remittance transactions. However, fewer commercial banks are willing to provide cash and banking services to businesses that transfer money to and within the Pacific. (In 2019, we established the Pacific Remittance Project (PRP) with support from the Ministry of Foreign Affairs and Trade (MFAT) to address challenges facing remittance service domestically and in the Pacific region.)

Action for a fit-for-purpose cash system

The Future of Cash Use issues paper process made clear that we must also ensure that the cash system remains fit for purpose in the face of falling transactional cash use and the emergence of new innovations in money. In October 2019 we published The Future of the Cash System consultation paper which included a range of possible. New cash and money provisions were included in the Reserve Bank of New Zealand Bill introduced to Parliament in July 2020.

The Reserve Bank is continuing to engage with the public and industry, including on system-level information and resilience needs. We are also formalising and embedding the distributed vaulting arrangements deployed during COVID-19. Alongside this, we will be working with industry to develop standards for banknote processing machines to ensure the authenticity and quality of our notes.

It has become clear that the cash system as it stands will not be sustainable in a world where cash is used less and less. This requires a broader response with either a series of changes to the cash system or a transformational redesign of the entire system.

To make this decision we will undertake a holistic and strategic review of the cash system.

The objective of the review will be to ensure that the physical and business arrangements for cash distribution are efficient, resilient, lower carbon and set up to meet the public’s needs now and into the future. The review will also take into account the public benefits and the increasing costs and efficiency challenges of providing cash.

One option to ensure that cash is available for the long-term might be concentrating cash services in a single provider. For example, the end-to-end cash infrastructure could be provided by an industry monopoly model. Alternatively, a private-public-partnership as seen in some parts of the water, transport and electricity industries could be used. Such a model would recognise the public case for cash.

For more information on cash system issues in New Zealand (we do not endorse or take responsibility for the views or operation of external websites):

The Future of the Cash System - Te Pūnaha Moni Anamata consultation paper - RBNZ, October 2019

We published this consultation paper in early October 2019, and invited submissions from individuals and groups open until 6 November 2019. The issues paper discusses: The role of cash in society, The supply of cash in New Zealand, Objectives for the cash system, Stewardship of the cash system, Oversight and monitoring, Standards for banknote quality, and Ensuring ongoing access to cash.
A Summary of Responses is provided (PDF 1.5MB).

Central Bank paper: 'We have responsibility to ensure cash available' - RNZ, 2 October 2019
“…The central bank has issued a paper on the future of the cash system, in which it proposes being given the legal responsibility for ensuring New Zealand continues to have an effective cash system.”

Cold hard cash now a hot topic - Southland Times, 23 November 2019
Michael Fallow’s feature reports on one of many community engagements held across New Zealand during 2019 to discuss cash use and cash system issues. Feedback from these engagements, alongside submissions received, was considered in confirming policy and designing improvements.