On 8 March Switzerland is asking its citizens whether cash acceptance should be included in the constitution, something Slovakia introduced in December last year. On 1 January Australia introduced (limited) cash acceptance legislation and on 4 February the Netherlands passed its Cash Payments Act. It feels as if wherever you look action is being taken to safeguard cash.
This century has seen a steady stream of economic shocks, rapid geopolitical changes, wars and conflicts, technology shifts (eg. cybercrime, the rise of AI, the looming spectrum of quantum computing), natural disasters, pandemics, and political crises. In many cases these have led to sudden and often large scale cash withdrawals by the public. Governments are thinking about resilience in a way they previously have not.
Added to this is evidence that even in the most advanced economies, there is a significant number of people who can’t, or won’t, adopt digital payments.
While the number can be debated, there is a persistent rump of the population who regularly use cash to the point of depending on it. The figures vary between 5-20% of the population of countries such as the UK and US. Faced with this reality, cash can’t be wished away and can’t be ignored.
A key challenge is that the fixed cost of the cash system has to be paid for whether used or not, and it has to operate at scale or it doesn’t function as a payment tool.
When volumes fall below a level, the private sector withdraws.
Throw in the historic cash managers, the commercial banks, wanting to be rid of the costs, complexities and risks associated with cash, and the risk of sudden collapse means action is needed, and needed fast.
The failure of the cash system in Australia is a stark and highly visible example of what can happen.
Outside of what central banks and countries facing ‘less cash’ pressures are doing, it is important to note that they aren’t the only ones.
As with South Africa, a number of countries have reviewed how they run their wholesale cash management operations. Australia is one of these, although the steps it has had to take to safeguard cash following problems after the merger of Armaguard and Prosegur are separate from this.
In the UK, the law has changed so that the Bank of England is now responsible for regulating and overseeing the wholesale cash system.
Sweden is also taking a series of actions which include building two new cash centres and regulating cash in transit companies differently to reduce the risk that they withdraw from the market.
While the creation of the ATM utility Geldmaat in the Netherlands and Batopin in Belgium are well known, they are not the only steps taken by central banks and the authorities to ensure access to cash continues.
While many countries are turning to their post office branches to maintain cash services, the UK also has a programme of creating bank hubs. These offer cash services along with bank branch services to places that would otherwise be bank branchless.
Austria, which is unique amongst central banks oin openly promoting cash use, is also commissioning ATMs to service a small number of communities who are without cash access. This direct funding of ATMs is highly unusual.
OeBN (the Austrian central bank) has also created its ‘EuroCash 360° Platform’ together with the Austrian Mint, consumer organisations, social partners, senior citizens’ groups, municipalities, and other stakeholders to safeguard the role of cash. Its purpose is not operational cash distribution, but coordinated policy, communication, and publicfacing engagement.
Similarly, the Bundesbank’s National Cash Forum is Germany’s new, permanent coordination body for all major actors in the cash cycle. Its role is to keep cash available, accepted, efficient, and resilient as payment habits shift.
Despite all this good work, central banks and governments continue to promote digital payments, introduce cash payment limits, ensure that state payments are not paid in cash, put time limits on cash exchanges when new series are introduced, and so on. The European Central Bank has introduced different legal tender definitions for cash and for a future digital euro.
It appears that, somehow, cash is simultaneously seen as a societal good but also a problem.
A recent Federal Reserve Bank of Atlanta Working Paper found that payment habits matter; once formed they are very hard to change. Consequently, once consumers have switched away from paying using cash, they prefer not to return to it. When retailers use discounts or surcharges to encourage cash usage, they have limited or no impact. No wonder legislation is needed to require cash acceptance.
Much of the activity around safeguarding the future of cash has happened since the pandemic ended. What we don’t know yet is what works and the time lag between action and results. Is there a ‘natural bottom’ below which cash doesn’t fall? Is there a way to create cash ‘affection’ to that people choose cash?
Time will tell.
