The future of cash in New Zealand

Reserve Bak of NZ issued a report on future of cash in the country:

The future of cash1 in New Zealand is uncertain. The Reserve Bank of New Zealand (Reserve Bank) is in the middle of a multi-year programme to establish The Future of Cash — Te Moni Anamata. This programme has identified that, despite an increasing trend in the overall cash in circulation (CIC), New Zealand is becoming a society that uses little cash.

New Zealanders are using cash less and less for transactions. As the transactional demand for cash falls, the per transaction cost of providing cash infrastructure increases. Commercial operators have natural incentives to reduce their costs and reduction in cash demand and use could lead them to reduce their provision of cash infrastructure, or to stop accepting and issuing cash. Such decisions — driven by commercial considerations — would in turn further increase the per-transaction costs of providing cash and lead to further reductions in the cash network.

The benefits of having cash become greater and greater as more and more people use it. This so-called ‘network effect’ of cash, also declines as fewer people use it. For example, if fewer consumers, businesses, and banks dealt with cash, the ability for people to use cash for transactions in stores and between individuals would decline. If this occurred, some of the unique roles of cash could be lost. The legal tender status of cash does not oblige anyone to accept cash as a means of payment except for debt.

A contraction in the cash network without regard to the wider benefits of cash in society might significantly disadvantage people who rely on the unique role that cash plays in their lives. This would be considered a market failure2 to the extent that commercial operators did not fully incorporate the wider network benefits of cash. As a result, government action could be warranted following the completion of this review.

The Reserve Bank is the sole issuer of cash in New Zealand and is required to issue currency that meets the needs of the public.3 There is no agency responsible for over-seeing the usability of cash by the public or stability of the cash system in New Zealand. Therefore, the Reserve Bank is taking a leadership position to assess the future of cash.

This issues paper outlines our4 preliminary analysis of the role of cash in society and the trends in cash use and supply. It sets out the key issues to consider – both positive and negative – if less cash were being used in New Zealand accepted that:

    1. People who are financially or digitally excluded could be severely negatively affected. These include:
      1. People who are not banked or have limitations to accessing the banking system, such as people without identification and proof of address, people with convictions, people with disabilities, illegal immigrants and children.
      2. People who face barriers to digital inclusion, such as people with disabilities, senior citizens, people with low socio-economic status, people that live in rural communities with low internet service, migrants and refugees with English as a second language, Pasifika, and Māori.
    2. Tourists, people in some Pacific islands, and people who use cash for cultural customs might be negatively affected if they cannot use cash substitutes.
    3. All members of society would lose the freedom and autonomy that cash provides and the ability to use cash as a back-up form of payment, and might be more exposed to national and personal cyber threats.
    4. There would be limited or balanced effects for people’s ability to budget, New Zealand’s financial stability, and government revenue.
    5. Cash infrastructure is costly. Moving to a society with less cash could increase efficiency and reduce the overall transaction costs of payments.

The issues arising from a society with less cash have a broad reach. This issues paper invites your feedback on whether we have correctly identified the most important issues and whether there any other significant issues that should be taken into account. It also seeks initial views on the roles of government and Reserve Bank are regarding these main issues.

The Reserve Bank will publish an analysis of the feedback received, as well as further research. A formal policy consultation may follow depending upon what emerges from feedback on this paper and further research and analysis.

 

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