Central Banks and Cash Round-Up

In the start of a new series in Currency News, we will be providing a summary of each month of central bank annual reports, and in particular developments regarding cash – be it circulation, management or counterfeiting.

This month, we look at Australia, Malaysia, Namibia and Switzerland.

Cash Payments Down in Australia

In the annual report recently released by the Reserve Bank of Australia (RBA), it stated that the value of banknotes in circulation reached $102.3 billion at the end of June 2022, equivalent to around 4.5% of nominal GDP. Growth over 2021/22 was 7.2%, marginally higher than its 10-year average, but below the growth rates seen during the pandemic in 2020 and 2021.

Much of the increase in circulating banknotes reflected a more subdued pace of banknotes being returned to the RBA, rather than additional banknote purchases. Overall, there were a little under 2 billion banknotes in circulation.

Over the year, around $2.1 billion of unfit banknotes were returned the lowest value of unfit returns since the introduction of the Next Generation Banknote (NGB) program in 2016/17. The return of surplus fit banknotes was also at historical lows. In comparison, banknote purchases by commercial banks were close to the historical average, with around $9.2 billion of banknotes being issued into circulation.

Growth in banknote was mostly driven by the higher denominations, highlighting a desire to hold cash for precautionary or store-of-wealth purposes. The demand for the lower denominations partially recovered during 2021/22 as pandemic-related impacts on in-person transactions reduced somewhat. Nevertheless, it is expected that the pandemic will have had a lasting effect on cash usage, with a survey of households conducted in late 2021 by RBA suggesting around one quarter of respondents have permanently reduced their preference for cash use as a result of the pandemic.

The declining use of cash for payments has placed pressure on the cash distribution system. In November 2021, the RBA launched a review of the arrangements for banknote distribution to examine how the system can remain effective, efficient, sustainable and resilient in the face of declining cash use.

In 2021/22, around 12,000 counterfeits, with a nominal value of $900,000, were detected in circulation., which corresponds to a rate of around 6 ppm. Since the first NGB banknote was released in 2016, there have only been 81 NGB counterfeits detected, compared with just over 122,000 counterfeits of the previous series.

The RBA’s wholly-owned subsidiary, Note Printing Australia (NPA), delivered 431 million Australian banknotes to the Bank, versus 234 million the previous year. The amount paid to NPA for the supply of banknotes and related services was $121 million, compared with $74 million in the previous year.

NPA also delivered 12.5 million banknotes under contract to Singapore, Solomon Islands and the Philippines.

BNM Annual Report Shows Cash Growing

Malaysia’s currency in circulation grew by 8% to 162.1 billion ringgits (RM) in 2022 compared with a record increase of 15.1% in 2021. Bank Negara Malaysia (BNM) attributed this to the public holding less cash for precautionary reasons as Malaysia transitioned out from the COVID-19 pandemic, as well as the continued acceleration of digital payments.

In 2022 BNM processed a total of 2.41 billion banknotes compared to 1.84 billion in 2021. BNM also registered four cash-in-transit (CIT) companies as currency processors.

BNM issued revised ‘Guidelines on Reproduction of Malaysian Currency Image’ and revised ‘Guidelines on Quality of Currency and Handling of Suspected Counterfeit Currency’. It strengthened the regulatory framework for currency management operations by issuing new requirements on financial institutions (FIs) and cash processors to observe the quality and integrity of currency, and manage their business, affairs and activities prudently, professionally and with integrity.

Besides that, BNM said Malaysia’s counterfeiting index was insignificant at 0.3 parts per million (ppm) as of end-December 2022, well below the international counterfeiting benchmark index of 15 ppm.

Cash Grows in Namibia Too

As the world returned to a semblance of normalcy, the Bank of Namibia noted a 2.4% increase in currency in circulation in 2022 compared to 2021. Particular increases were the N$10 (15.7%) and the commemorative N$30 (7.9%).

The volume of notes in circulation rose by 2.3%, from 54.4 million to 54.6 million. The volume of coins rose by 3.9% from 684.6 million to 698.5 million.

An increase of 32.9% was registered for counterfeits (which reached 206), compared with a 57.4% decrease the previous year (numbering 155). However, said the Bank, the counterfeits were of poor quality and, at 3.97 ppm, well below its threshold of 10 ppm. 55.8% of counterfeits were the N$200. It says it has recorded a steady decline in the volume of counterfeit notes over the past five years.

CIC Values Fall but Volumes Rise in Switzerland

Following the Swiss National Bank (SNB) policy rate hike in June 2022, cash flows back to the central bank increased from July onwards. Cash does not earn interest, said the SNB, so when interest rates rise, demand for large-denomination banknotes, which are primarily used as a store of value, falls. The value of banknotes in circulation thus decreased. It averaged CHF 87.2 billion in 2022, a 1.3% decline year-on-year.

By contrast, the total number of notes in circulation was 1.1% higher than in 2021, averaging 537.6 million. This slight increase suggests that, despite digitalisation, the Swiss population continues to use cash – especially the smaller denominations – for payment purposes.

The SNB put 61.7 million new banknotes into circulation with a nominal value of CHF 10.9 billion (compared with 64.5 million and a nominal value of CHF 14.5 billion in 2021). It destroyed 51.4 million damaged or recalled notes (versus 79.5 million in 2021). The decrease in new banknotes destroyed was due to a large proportions of the eighth banknote series notes (which was recalled in April 2021) now having been replaced. This process is continuing.

In 2022, 8,200 counterfeit banknotes were confiscated in Switzerland ((2021: 2,493). The SNB said that most of the counterfeits were of poor quality and could be easily and reliably detected by checking the standard security features, without the use of technical aids. The sharp increase in counterfeit banknotes was due to a small number of scams, including a major one involving 4,850 counterfeit CHF 1,000 notes.

The SNB is also responsible for coin circulation. The value of coins in circulation averaged CHF 3.2 billion, corresponding to 5.8 billion coins. Both the value and volume grew by 0.9%.