The Future of the Cash System - Te Pūnaha Moni Anamata
The Reserve Bank – Te Pūtea Matua is working with cash system participants – initially the major trading banks who are our wholesale cash customers and the armoured car companies – to address the three key issues we see as critical to ensuring the cash system continues to serve the needs of the public as cash use declines:
1. The cash system is a scale business; reducing cash use will likely lead to contraction of the cash system infrastructure.
As fewer and fewer people use cash for transactional purposes, it is likely to become more difficult to use cash as retailers either stop accepting it or reduce the number of checkouts that accept cash. This is already occurring in the retail sector where examples of both can be found.
Similarly the ability to access and deposit cash is likely to become more difficult. The high fixed costs associated with the commercial banks providing access to cash suggests that continued optimisation of branch and ATM networks is likely. These networks have been gradually reducing over the last 3 years suggesting access to cash is already harder for some people than it previously has been.
Similarly, the economics of the current commercial distribution, processing and vaulting model will come under increasing pressure as volumes decline.
Reducing transactional cash use and the associated impacts on the cash system is an issue being addressed by an increasing number of Central Banks and cash system participants around the world.
2. Bulk and wholesale cash vaulting arrangements could be arranged in a way that better supports overall efficiency and resilience of the cash system.
The Reserve Bank’s current vault location and terms of trade support a duplication of activities and a high number of transports. The vault is also a potential single point of failure and a high concentration of risk, holding the vast majority of New Zealand’s domestically vaulted currency (but there is a back-up in place to ensure cash can still be supplied should the Wellington vault be unavailable).
To the extent that development of a new Reserve Bank vaulting solution unlocks further efficiency gains and/or disturbs the current logistics arrangements, there is a risk of significant disruption to the wholesale and retail components of the cash system.
There is no formal arrangements in the system that encourage distributed currency vaulting. Developing a new vaulting solution for the Reserve Bank is an opportunity and a catalyst for the sector as a whole to think about optimal arrangements and for the Reserve Bank to reduce concentration risk and reliance on offshore holdings for emergencies.
3. No framework exists to enable effective management of the cash system.
Both the wholesale and retail components of the cash system lack cohesive strategies that comes with the ability to view the system as a whole:
- It is not clear where responsibility for outcomes and tasks sit amongst cash system participants
- There is no vehicle for cash system participants to identify, assess and co-ordinate responses to change
- There is no way to collectively identify change in the cash system
- There is no system wide approach to Business Continuity Planning (BCP)
- There is increasing risk that the cash system will be significantly compromised by disruption in the logistics industry that supports the cash system
You can read more about these issues in our Cash System Issues discussion document - May 2019 (PDF 1.7MB).
The discussion document content is also summarised in a Cash System Issues presentation (PDF 850KB).
Both the discussion document and the presentation include descriptions and comparisons of cash systems in other countries.