Review of Banknote Distribution Arrangements: Issues Paper 1. Introduction

The use of cash in Australia is changing. Despite the value of currency in circulation continuing to increase, physical cash is being used less as a means of payment. This trend has accelerated with the COVID-19 pandemic as consumers have turned further to electronic and online payment methods. Nonetheless, cash is expected to remain an important means of payment into the future, particularly as some parts of the community rely heavily on cash in their daily lives. Cash is also important as a back-up for electronic payment methods and as a store of wealth; this applies on a day-to-day basis but becomes particularly important in times of economic or financial uncertainty. For now, the Australian public has good access to cash.

The Reserve Bank of Australia is the sole issuer of banknotes, but is only one participant in the banknote distribution system. This system is the means by which banknotes move between the Reserve Bank and the businesses and consumers that use them; it also includes mechanisms to maintain the quality of banknotes in circulation. The key elements of Australia's banknote distribution system have been in place since 2001. They were established at a time when cash was the most commonly used retail payment method and have worked well to ensure access to cash for both businesses and consumers. The declining use of cash for retail payments, accelerated by the COVID-19 pandemic, has placed pressure on the current cash distribution system. Specifically, lower processing volumes have led to underutilisation of cash distribution infrastructure and increased the average cost of transporting and processing banknotes.

1.1 Objectives

The Reserve Bank is committed to meeting public demand for its banknotes so that cash continues to be available for those who want or need to use it. It places a high priority on the community having good access to cash withdrawal and deposit services. Having a banknote distribution system that is sustainable in an environment of declining transactional cash use is critical to this goal. Consequently, the Reserve Bank is conducting a public consultation to determine what changes to Australia's banknote distribution system might be required so that banknote distribution is:

• effective – the distribution system enables demand for banknotes across the country to be met and supports the maintenance of good quality banknotes in circulation
• efficient – the distribution system is cost-effective and enables the community's cash needs to be met without prices being unreasonably high
• sustainable – the distribution system is able to continue operating in the face of declining and/or comparatively low levels of transactional cash use
• resilient – the distribution system is able to withstand disruptions and shocks to cash demand.

The consultation will review:

• the structure of the banknote distribution system and the roles of existing participants including the Reserve Bank, commercial banks and the cash-in-transit (CIT) industry
• issues faced by industry participants in carrying out banknote distribution
• how the current banknote distribution arrangements with the Reserve Bank impact the ability of industry participants to meet banknote demand and adapt or innovate to the changing economic environment, including the ability of new participants to be involved in banknote distribution or for new business models to emerge.

1.2 Scope

This consultation will focus on various aspects of the banknote distribution system – namely, the movement of banknotes to and from the Reserve Bank, within the network of cash depots, and to financial institutions and retailers. The Reserve Bank invites views related to the following factors:

• The arrangements that govern how industry participants transact with the Reserve Bank to purchase and return banknotes. This includes the contractual, reporting and other obligations on current participants, as well as the ability of other entities to access these arrangements.
• The arrangements in place to manage the quality of banknotes in circulation.
• The operation and ownership of the infrastructure necessary for the wholesale storing, processing and transportation of banknotes. This infrastructure includes, but is not limited to, secure cash depots, banknote processing and quality-sorting equipment, and the associated vehicles, systems and software.

This review is intended to identify issues related to the arrangements in place for distributing banknotes around Australia. However, there may be other areas of the broader cash landscape that provide context and are relevant for understanding distribution-related issues. Although we are not considering coin distribution arrangements, we recognise that these arrangements rely largely on the same infrastructure as banknote distribution.

The Reserve Bank is seeking views from interested parties on the issues raised in this paper. Section 6 provides details on how to contribute. Key questions for stakeholders are included throughout the paper and collated in the Appendix. This paper seeks to identify the key strategic issues and potential options for changes to banknote distribution arrangements in an environment of declining transactional cash use. A subsequent paper, which is expected to be released in mid-2022, will provide a summary of the consultation responses and set out recommendations.