Cash no longer king but little sign of it disappearing
Extinction rebellion by RBNZ to keep money in circulation
With fewer cash machines, bank branches making it hard to get and more retailers refusing to accept it, is cash doomed to extinction?
“Well, not if we’ve got anything to do with it,” says the Reserve Bank’s director of money and cash, Ian Woolford.
Woolford leads a Reserve Bank (RBNZ) project aimed at ensuring cash remains in circulation for the foreseeable future — even if its usage is declining.
An RBNZ survey of the public in 2021 found just 63 per cent of Kiwis use cash.
That’s a big decrease from 2019, when the survey found 96 per cent still used cash.
Of those who did use cash, 40 per cent now do so less than twice a week.
When results of the latest survey — conducted last year — are collated and published, they are unlikely to show the trend reversing.
But Woolford says the surveys and consultations done by the RBNZ show people do still value the option of using cash.
“They may be using it a bit less. When you talk to the banks, the banks will often say, ‘well, people just don’t want to use it’, and in a sense that’s portrayed as a bit of a demand phenomenon,” he says.
“Now, it’s certainly true that a lot of people prefer to transact digitally.
“Maybe they prefer it, it’s more convenient. But we also know a lot of people do want to transact in cash, but it’s getting harder and harder.
“I’d say that’s kind of like a supply phenomenon.”
It has been well-documented that people’s demand for cash goes through the roof in the event of natural disasters, Woolford says.
“So after the Christchurch earthquakes, for example, after Cyclone Gabrielle, you [saw] a spike in people holding cash for precautionary reasons,” he says.
“One of the lessons out of Cyclone Gabrielle is just how much resilience the system has lost as banks’ footprint has reduced.”
Woolford is not convinced the demise of cash is simply a generational issue, either.
“I think historically, people have seen it in a fairly black-and-white way, like it’s more the older generation. I’m not sure that’s necessarily the case,” he says.
“Younger generations, on the one hand, they’re a lot more digitally savvy, but on the other hand, through that savviness, they’re also quite concerned about privacy, you know?”
There is evidence a new generation is starting to think about cash in a different way.
“I’m not on TikTok myself, but I know there’s a number of TikTok and Instagram influencers out there talking about things like cash budgeting, envelope stuffing, that kind of stuff.”
The key issue to declining use was access to cash itself, Woolford says.
“It’s just getting harder and harder for people to access cash,” he says.
“You know, in the lower North Island over the last 20 years, banks’ footprint has shrunk by almost 50 per cent. So that’s bank branches and ATMs gone. In the rest of the country, it’s around sort of 35 to 40 per cent.”
As it gets harder to access cash it becomes harder for retailers to deal with it, and that creates a “network effect” in which the option of using cash disappears, he says.
Woolford says there is an element of truth to public fears commercial banks are trying to phase out cash.
“I think some banks are probably a little bit more proactive in trying to pivot people into digital. It’s scalable. You don’t have the same distribution costs.
“As the percentage of transactions in cash goes down, the per-unit cost of those transactions goes up.
“There’s a cost to maintaining and keeping bank branches open.
“So you can see why. Banks look to manage their bottom lines quite closely.”
But the notion of a world where banks don’t accept cash or enable people to access cash starts to raise questions about what it means to be a bank, he says.
One statistic the RBNZ research has found is about a third of the country’s cash is being accessed via retailers, as opposed to banks or ATMs, but retailers pay for about three-quarters of the cost of the entire cash system.
So the RBNZ is inviting small towns (of between 1000 and 10,000 people) that are underbanked or have no bank to apply for a programme which would see them get specific help to maintain access to cash.
“We want communities to engage,” Woolford says.
“One option could be putting a smart ATM in there that enables retailers to deposit money.
“Or we’ll fund cash and transit firms coming in more regularly, especially if you get into more far-flung rural areas. We’re also looking at remunerating retailers for that cash-out service.”