Banks are welcoming a move towards digital payments and even a digital NZ dollar – but the Reserve Bank suggests they should pay to maintain cold hard cash for those who still need it
Once, cash was king. Now it’s the pauper of the payments system. Banks are encouraging customers to move all their transactions online, enabling the big five high street banks to cut back on the numbers of costly money machines, branches and, most particularly, staff.
Earlier this year, within days of Westpac announcing its half-year profit had doubled to $583 million, staff shut down the bank’s branch in Palmerston North’s Shopping Plaza because only two staff were rostered on, and they feared being caught on their own in an emergency or being attacked by an abusive customer.
Branch numbers have almost halved from 1130 to 652 over the past 10 years, and they’ve continued closing under the shadow of lockdowns, many to never reopen.
The Reserve Bank says the decline in bank branches has been most pronounced in rural areas, disadvantaging elderly and socially vulnerable customers. While the big end of town is no longer reliant on cash, is is the bread and butter of daily life for small provincial retailers and their customers.
It is under in this context that the Reserve Bank has published a consultation paper, proposing radical solutions to salvage a future for cash.
Cold hard Kiwi cash is also critical in Niue and Tokelau, where they have no money machines, and the consultation paper cites anecdotal evidence of international fee-paying students’ and tourists’ demand for New Zealand banknotes in China – at least before Covid closed the borders.
And in a crisis, people fall back on the perceived security of cash. Last year when the first Covid lockdown hit, New Zealanders rushed to withdraw about $800 million in cash, compared to just $150 million in March 2019. The bank forecast most of that money would be returned as people resumed doing shopping and business – but a year later, Kiwis were continuing to withdraw their cash. With fear high and interest rates low, bankers believe some were literally keeping their cash under the mattress or secured at home.
The value of cash in circulation remains high, which means people have been holding on to the cash they withdrew last year.
“Banks may prefer a digital-dominant (or digital-only) relationship with customers, but that has consequences for cash availability. This is as much a social licence argument about banks’ relationships with their customers as it is an economic argument.”
– Reserve Bank
Having a central currency (whether cash or a proposed digital NZ dollar) means people know the value of the goods, services, and assets they buy, and that New Zealand retains monetary sovereignty, the consultation paper says.
It floats 16 options for protecting cash, but discounts some out of hand – most notably, using "moral suasion" to impact on banks' cost recovery strategies and convince them it's in the public interest to invest in the machinery of cash transactions.
It narrows the tools down to a bundle of eight. These include better access to wholesale cash, setting cash machine standards, producing and using coins more efficiently, and requiring merchants and government entities to accept cash.
For banks, they would be required to pay a fee to retailers who provide "cash out", and required to provide low-cost cash services to their customers.
The paper discusses whether the cost of printing and distributing banknotes and coins should be borne by bank customers when they withdraw cash from their accounts, taxpayers because cash provides a greater public good, the merchants who accept cash; providers of competing payment options like credit cards – or the banks themselves.
"In times of uncertainty, people seek the security of cash – knowing money can be withdrawn from bank accounts into cash provides confidence that money in bank accounts is safe too."
– Christian Hawkesby, Reserve Bank
Retailers and other merchants are already paying for cash – through expensive tills, foregoing interest on money they keep onsite, and the costs of managing the security risks. So some of the policies suggest a rebalancing of costs towards banks, the paper argues.
"In some ways, the question of what role banks play in the cash system – historically, now, and in the future – goes to the very essence of what it means to be a bank. Banks may prefer a digital-dominant (or digital-only) relationship with customers, but that has consequences for cash availability.
"This is as much a social licence argument about banks’ relationships with their customers as it is an economic argument."
The paper also suggests the Government should bear more of the costs of the cash system by requiring merchants – especially government agencies – to accept cash when they interact with the public.
Reserve Bank Assistant Governor Christian Hawkesby expressed the hope the paper would provoke debate that identified gaps or refinements before they announced their solution.
“Falling cash use for everyday needs and the retreat from cash services by banks and retailers threaten financial and social inclusion for some, and have the potential to undermine the important role cash provides under-pinning confidence in private money in bank accounts," he said. "We call this acting as a value anchor.
"In times of uncertainty, people seek the security of cash – knowing money can be withdrawn from bank accounts into cash provides confidence that money in bank accounts is safe too."
"ANZ has been working closely with the Reserve Bank across ... how we design a cash system, which is fit for purpose and meets the needs of all customers."
– Brian Bonar, ANZ
A Reserve Bank survey found 8 percent of New Zealanders used cash as their main method of payment last year – that’s about 400,000 people.
Citizens Advice Bureau national adviser Sacha Green told Consumer NZ that a wide variety of people were adversely impacted by not being able to pay with cash, like those on low incomes who didn't have debit or credit cards, young people who didn’t have their own bank accounts, and older people who were reluctant or anxious about transacting online.
Being unable to use cash effectively excluded people from our society, she said. “It can take away people’s independence and make things harder for people who are already struggling.”
The survey also found 6 percent of respondents said they would be unable to cope in the future if they couldn’t get or use cash, and 37 percent said it would be “difficult in some situations” if they were unable to get or use cash.
Facing criticism for reducing branches and ATMs, and reducing access to cash, the big banks are now welcome the Reserve Bank's backing for the growth of online digital payments.
Brian Bonar, the head of payments industry at ANZ, said it supported the Reserve Bank taking on a leadership role across the future of cash.
"ANZ has been working closely with the Reserve Bank across their stewardship mandate, central bank digital currency exploration and now more broadly how we design a cash system, which is fit for purpose and meets the needs of all customers," he said.
"The dynamic and growing emergence of online digital payments is also an important consideration. Being able to work collaboratively with the Reserve Bank to shape and balance a new payments ecosystem, for the good of all New Zealanders, is an exciting opportunity."
ANZ, like other banks, intends to consider the options put forward by the Reserve Bank in its discussion paper. Bonar said the bank would provide feedback as part of the consultation process.
