Building a Resilient Cash Infrastructure

In the last two issues of Currency News™, one topic we have focused on has been the resilience of cash, and how central banks and services providers have responded to a number of different crises.

In the current time of great uncertainty, with multiple crises colliding, the supply of cash plays a central role in securing a functioning economic system. At the same time, the cash infrastructure is coming under pressure economically. Thus, a resilient cash cycle that adapts quickly to changing circumstances is becoming increasingly important for central banks.

Currency News™ spoke to Wolfram Seidemann, CEO of G+D Currency Technology, about these challenges and his view on what makes a resilient cash supply.

Q: Wolfram, resilience is a big word in these times. How would you define it?

A: Resilience in a business context means the ability of an industry to adapt and respond effectively to changing circumstances, unexpected disruptions, and crises. A resilient organisation can quickly recover from setbacks, maintain its operations, and continue to provide value to its customers and stakeholders. But even more than simply bouncing back after an interruption, we need to adapt and transform in the face of change.

Q: With regard specifically to a resilient cash cycle, what does this mean?

A: Today the cash cycle faces four major challenges.

First of all, we well know how much cash was circulated; however, there is the unpredictable development of cash usage.

Second, there is an increasing volatility in cash demand and cash infrastructure needs.

Third, we have to cope with rising costs for cash operations, with two thirds of the costs being more or less fixed.

Last but not least, we have to make the whole cash cycle more sustainable to support the reduction of the carbon footprint of the economy.

We need to tackle these challenges in order to keep the cash cycle alive in its core functions – namely the three A´s: Accessibility, Availability and Acceptance of cash in an economy.

Q: To become even more specific. In what way does the cash cycle need to be adjusted to be more resilient?

A: A resilient cash cycle has a strong technology infrastructure, with redundancies and backup systems in place to ensure that operations can continue even in the event of a disruption.

One aspect of this technology infrastructure we call ‘cash visibility’: Central banks know well the exact amount of cash they distribute. Once the cash is in circulation, many players are involved. Data about each process within the cash cycle is difficult to obtain, eg. gathering information from each cash point. Therefore implications of certain occurrences are hard to foresee.

Generating cash visibility by intelligently using data and optimising the cooperation of cash cycle players helps to identify problematic points of the cash supply. This forms the basis to act accordingly in times of change or stress to the system.

Q: What would such problematic points be?

A: Take the availability of cash in the wake of an environmental disaster. Cash demand is rising, the supply has to be secured. If you had data on former comparable occurrences you could foresee how much cash volume is needed, in which denomination split, how it has to be distributed and processed regionally. The cash infrastructure would be prepared for such a sudden external shock; restrictions to the availability of cash could be minimised or even disruptions of the supply avoided.

Or take another example in the context of a transformational change which impacts cash acceptance. In some instances we see a situation that retailers refuse to accept cash as means of payment. This is mainly due to cost reasons. Anticipating this development, we have to make sure that cash remains attractive for retailers.

This can only be the case if we maintain the efficiency of cash management. Further automation in cash processing, digitalisation and standardisation within the cash cycle reduce the cost of cash.

Q: Do you think a change in the cash cycle process with a greater involvement from the retailer side could make cash acceptance more attractive to merchants?

A: You mean a shortened cash cycle with retailers authenticating the money at the point of sale? No, not at all. We have to make sure that cash remains a trusted means of payment. In an integrated cash cycle with efficient processing, fitness as well as counterfeit quality checking is key. In countries where the standards of quality controls were reduced, we experienced a rise in number of counterfeits. People lost trust in cash and switched to digital payment methods.

But cash provides a lot of value to societies and also is the most important and stabilising means of payment in times of crisis. Therefore, I would actually add a fourth ‘A’ as prerequisite to a vital cash cycle – for Authenticity. No compromises should be made in this aspect.

Q: Apart from the economic pressure the cash infrastructure faces, sustainability is also becoming an issue. How do you see the interplay between sustainability and resilience in the cash cycle?

A: Reducing the ecological footprint within the cash cycle is one of the main tasks for the whole currency industry. Dependent on the type of the ‘crisis’ event, sustainability measures will contribute to a more resilient cash cycle, while on other occasions they might be contradictory to it.

For example if you define a business continuity plan in the case of a power outage with fall back solutions, it might include the provision of gasoline generators or certain redundant parts of the infrastructure. This measure is at odds with more sustainability.

On the other hand, the already mentioned standardisation impacts positively in both ways.

Q: Can you give an example?

A: Look at the cash distribution and take standardised trays in banknote packaging process and transport. They would contribute to more efficiency in the cash cycle as certain processing steps are reduced. At the same time they support sustainability efforts with less disposables and less plastic waste being generated.

Q: So there remains a tension between building a resilient cash cycle and at the same time reducing the ecological footprint within the process. Do you see a way to resolve the contradictions?

A: Coming back to the beginning we talked about the major challenges the cash cycle and all its participants are facing. Uncertain times will persist with implications from climate change, geopolitical tensions, and different economic developments around the world. In these times, cash has a unique role for society not only as public money and universal means of payment but also as a most inclusive one.

To tackle the challenges and become more steadfast, we need a stronger collaboration of all stakeholders in the cash cycle, we need to re-innovate processes, drive standards, work on interoperability of data and set up a more resilient, and at the same time more sustainable, cash infrastructure.