Review of Banknote Distribution Arrangements: Issues Paper Box B: International Responses to Declining Cash Use

Transactional cash use has declined across many advanced economies (Graph 13). Policy actions have been taken in response (or are being considered), including mandating cash access and acceptance so that cash remains a convenient means of payment, and implementing alternative models for wholesale cash distribution to maintain efficiency at lower levels of cash use.

Graph 13
Graph 13: Trends in Cash Payments

Mandating cash access and acceptance

Transactional cash use in the Nordic countries has fallen significantly and is among the lowest in the world; as such, policy responses there are further advanced than in many other countries. In Denmark, Norway, and Sweden, these responses include obligations on banks to provide reasonably accessible cash deposit and withdrawal services to their customers. A Swedish parliamentary committee also recently recommended mandating retail acceptance of cash in some circumstances. Although cash access and acceptance are mandated in some circumstances in the euro area, the European Central Bank (ECB) and the European Commission are currently examining ways to strengthen cash access and acceptance (ECB 2021; European Commission 2020).

There have also been efforts to protect cash access in the United Kingdom by promoting ‘cashback’ at retailers without making a purchase, and by potentially giving new powers to the Treasury to set geographic cash access requirements. A number of countries, including in parts of the United States and China, have mandated or encouraged merchant cash acceptance. While these policies largely target retail cash access and acceptance, they imply a requirement for a minimum level of cash distribution services.

Alternative models for wholesale cash distribution

A number of central banks have begun, or are considering, greater involvement in the distribution of cash. Recently introduced legislation has mandated the Reserve Bank of New Zealand (RBNZ) to take a greater role in cash management, including to promote an effective cash system. The RBNZ recently launched a consultation to seek feedback on its role in cash and a redesign of its cash system (RBNZ 2021).

In the United Kingdom, consideration is being given to a utility model – where a single consolidated entity is formed by a number of organisations to carry out wholesale cash distribution functions – in response to lower cash use. This followed a recommendation in 2019 from the independent Access to Cash Review (ACR), which suggested a utility model could support the ongoing use and economic viability of cash (ACR 2019). Independent analysis of the proposal found that moving to a utility model would reduce overcapacity substantially, leading to lower costs for the industry in the medium term (Wholesale Distribution Steering Group 2020). The implementation of a utility model is not without transitional costs, however, and a model is yet to be finalised. Ultimately, the decision to participate in such a utility model is seen as a commercial decision for the banks and firms involved.

The Nordic countries have used shared utility models for cash distribution for some years. The structures of these cooperative arrangements differ by country, including the role of the utility in cash processing and transport (Scholten 2017). Over time, these arrangements have expanded to encompass ATM networks in Finland, Sweden, and Norway. The ownership of these utilities has changed as well. The utilities in Denmark and Finland were acquired from commercial banks by private CIT companies in 2016 and 2020, respectively; in Norway, the central bank and commercial banks have sold their stakes in the utility.

In the case of Sweden, a review of the utility model after five years found it had an appropriate incentive structure (because banks own the utility but are also the main customers), and created efficiency gains from centralised processing of large volumes of cash. However, some concerns were raised about competitive neutrality, as not all customers are part of the utility (Riksbank 2010). More recently, a parliamentary committee recommended giving more responsibility to the Riksbank for wholesale distribution, despite the utility model being in place, in order to manage monopoly pricing and contingency risks (Riksbank 2020).