The declining use of cash for retail payments, combined with an increase in cash hoarding, has put pressure on the cash distribution system, according to a new Reserve Bank paper.
Lower volumes have led to underutilisation of cash distribution infrastructure and increased the average cost of transporting and processing banknotes.
The RBA has launched a public consultation to determine what changes to the distribution system might be needed to keep it operating effectively, and yesterday released an issues paper, Review of Banknote Distribution Arrangements.
It said it is committed to meeting public demand for cash, so that it continues to be available for anyone who wants to use it. It “places a high priority on the community having good access to cash withdrawal and deposit services”.
But it wants distribution to be sustainable in an environment of declining cash use. Its aim is for the consultation to help determine how the system can continue to meet demand for cash, be cost-effective and able to withstand any “shocks” to cash demand.
The cash distribution system includes the movement of banknotes to and from the RBA, the network of cash depots, financial institutions, retailers and logistics companies.
The RBA will review contractual arrangements with industry participants transacting with the RBA, arrangements to manage the quality of notes in circulation and the operation and ownership of the infrastructure necessary for the storing, processing and transportation of notes.
Since the start of the pandemic, demand for banknotes has increased while the use of cash for transactions has declined. Over the decade prior to the pandemic the value of banknotes in circulation grew by around 6 per cent a year.
But between February 2020 and October this year, the value of banknotes in circulation increased by 20 per cent. The value of banknotes in circulation is currently around A$100 billion – double the value of 2010.
Over roughly the same period the share of retail payments made with cash fell from 69 per cent to 27 per cent.
The RBA said: “The increase in banknotes in circulation against the backdrop of declining transactional cash use can be attributed to the growing role of cash for precautionary and/or store-of-wealth purposes. Around half to three-quarters of banknotes on issue are estimated to be hoarded.”
As a result of these trends, banknotes are not circulating through the economy as much as they used to. The value of ATM withdrawals has fallen by around 40 per cent since 2012. Lodgements at major cash depots have fallen by 55 per cent over the same period.
Some of the questions the RBA wants interested parties to respond to include whether current banknote distribution agreements between the RBA and participating institutions are working effectively, and whether steps could be taken to allow other parties to participate.
It also wants feedback on how arrangements with approved cash-in-transit companies are working and whether private participants have a role to play in monitoring banknote quality.
The role of AusPayNet will be included in the review. It manages the Australian Cash Distribution and Exchange system, which governs the exchange of