Currency Conference: An Industry in Change – Part 2

The Currency Conference took part in Mexico City in May 2023, overlapping with the Digital Currency Conference.

In last month’s issue, we reported on the overall conference themes and the changing cash landscape, with a dip into some of the keynote papers. This month we cover the papers on access to cash, currency threat assessments, public education, sustainability, innovation and resilience.

Access to cash

According to the Bank of England, recent cash trends in the UK are putting pressure on the wholesale and retail cash infrastructure. Legislative changes have meant that the Bank is responsible for wholesale cash while the Financial Conduct Authority looks after retail cash.

The Bank has market oversight, managing the risks to the effectiveness, resilience and sustainability of wholesale cash, and prudential supervision managing risks to financial stability and to maintain confidence in the UK financial system. It laid out the tools it has at its disposal to achieve this.

Cash remains important to many in the UK and so there is a commitment to cash, with significant legislative reforms in progress to enable cash to remain sustainable into the future.

On the other side of the world, Ian Woolford has the job description at the Reserve Bank of New Zealand (RBNZ) of Director, Money and Cash, reflecting New Zealand’s joined up thinking on the future. In 2018 RBNZ published its Future of Cash paper and in 2021 the Future of Money paper. The problem is clear. Cash is declining steadily, and an unwelcome outcome is happening because of a market failure and the role of incentives.

In 2007, 30% of household payments were in cash, today it is 13%. Merchants provide 34% of cash from their tills but pay 69% of the cost of that. Banks account for 56% through their ATMs and pay 29% of the costs. Overall, the cash system costs New Zealand 0.25% of GDP per annum.

The role of cash as a value anchor and for financial inclusion means that cash needs to be maintained. As a result, a redesign of the cash system is underway and cash trials are going on in communities most vulnerable to going cashless.

The redesign is based on four themes:

• Resilience – consolidation on a utility basis, broadening access to wholesale cash, recycling quality standards for the point of sale and a solution for coins.

• Cash acceptance – instigate the remuneration of merchants by banks, mandate merchant cash acceptance.

• Cash access – direct banks to provide cash services at low cost to customers.

• Consumer demand – consumer awareness campaigns.

Currency threat assessments

Frank van der Horst, from the Dutch National Bank (DNB) explained that whether people make fast, automatic and intuitive decisions to accept a banknote or slow, deliberate, rational decisions depends on attitude, the situation and the banknote.

The average European scores the euro banknote 7.8/10 for trust. As a result, the default assumption is that they are genuine, and DNB has found that 77% of Dutch people do not check their banknotes.

Paying attention pays off, distrust improves detection, feel and look are important, the time for checking a banknote is limited, balanced communications help, as are striking security features.

The Bank of Mexico introduced the 5 Nations’ Common Adversarial Analysis Assessment Methodology (CAAAM). The methodology is to facilitate common understanding of adversarial analysis evaluation processes, to develop a joint method for assessing the quality and complexity of public overt (Level 1) security feature simulations and to create a common language to facilitate the exchange of information.

This project was started in 2015 and the 5 Nations are keen to share this approach with other banks.

Public education and perception

Banco de España (BdE) explained its programme of public education, including for cash professionals, and how it is using perception testing to enhance this training. Attendees take a perception test before and after the training to assess progress made.

Failure to identify a counterfeit fell by 46% and rejection of genuine notes fell by 11% after the training. The training improved the general hit rate, but mainly to authenticate genuine notes. The training significantly enhanced the recognition of security features such as colour change ink, holograms and windows but, perversely, reduced the recognition of paper and the intaglio feel of notes.

BdE sees opportunities to use new technology to enhance immersive learning, allow the measurement of how long it takes to check each banknote and establish a new relationship between metrics.

Today’s database creates an index of counterfeited features which is used to create a score for the ‘deceptiveness’ of the counterfeit type. BdE sees the opportunity to use perception tests to establish how easy or difficult it is for the public to detect a counterfeit, ‘discriminability’.

Sustainability

The European Central Bank (ECB) talked about its recent environmental footprint study. It used the Product Environmental Footprint (PEF) methodology, which is a harmonised cradle-to-grave Life Cycle Assessment methodology, along with defined data requirements, developed by the European Commission. PEF has clear guidance, technical detail, limited choices, reproducibility, comparability and robustness.

The presentation explained what was measured and the work done. The result was that the environmental impact of annual payments with euro banknotes per European Union citizens is very low overall, corresponding to 0.016% of their overall consumption footprint. The ECB has a clear action plan to reduce the environmental impact of cash further.

The Bank of Mexico is also reducing its environmental impact and started by detailing its Life Cycle Analysis. The results have driven its work to extend note life and to find better alternatives for the disposal of cotton waste.

Luminescence put in context the environmental footprint of cash relative to other industries and then laid out what it is doing and what central banks and printers can do to deliver sustainability.

ControlTek gave an overview of how to recycle plastics. As part of this it explained it has the first, third party verified, 90% post-consumer recycled tamper-evident bag.

Grupo Seguridad Integral is one of Mexico’s biggest cash in transit companies. It reported on the project started in 2019 to separate and classify all waste and then to dispose of it properly. It is introducing electric vehicles and now measures both its water and carbon footprints. It has a range of future projects in hand focused on rainwater collection, solar and wind power generation.

Innovation

The innovation sessions from the suppliers demonstrated both steady incremental changes through to bold new thinking. Both, of course, are needed.

Landqart’s Jazz note, a demonstration of Koenig and Bauer Banknote Systems SUSI Optics® Jazz™ feature printed on a window in the Durasafe® substrate, was made more dramatic by being on a design created by the Swiss watch maker Swatch (see CN June 2023).

Bundesdruckerei explained their Sustainable, Innovation, Recycling, Action (SIRA) approach and the resulting computer chip in paper with its micro controller, near field communication interface and secured key handling all at a thickness of less than 70 microns. Their print on black design certainly brought bold new thinking and opportunities, including for ultraviolet (UV) features (again, see CN June 2023).

New UV features were also presented by the Polish printer, PWPW, and Gleitsmann Security Inks. Meta presented what they said was the world’s first fully plasmonic 3D animated banknote security feature (see page 14), Orell Füssli introduced the Escher® method which they are using to transform real objects into digital 3D intaglio design elements, and the Royal Canadian Mint talked about a range of innovations on the topics of multi-plated steel, advanced security features, pad-printed colour, glow in the dark technology and bi-metallic manufacturing.

Resilience

Austria is a high cash usage country, with 47% of people holding money at home as a reserve and average wallet holdings of €121. The government has developed detailed plans with retail partners about what will happen in an emergency/blackout, for example giving away frozen food, and supermarkets closing on the first day but open thereafter to hand out food bags against cash payments.

For cash, the recommendation is that households should be holding at least €100 per person in small denominations. A ‘cash in any case’ initiative saw 250,000-300,000 envelopes distributed between February and March 2023 from 380 post offices. These envelopes contained tips for emergencies, including encouraging cash holdings.

Members of the national parliament have been invited to discuss the status quo of cash, cash supply and acceptance. A Cash Advisory Board consisting of the board of the central bank and the boards of commercial banks has been set up to discuss future cash supply, cash infrastructure and the supply of cash in an emergency. A cash information campaign has been set up by the central bank with the Austrian Mint to promote cash on TV, radio and the internet.

Germany’s Bundesbank has worked on a resilience business continuity concept for cross-regional and national crises. The concept includes credit institutions, cash in transit companies, retailers, the government and the central bank. An area of focus has been the IT solutions to support information management in a crisis.

Unfortunately, South Africa has experience of crisis, specifically power shortages. As a result, it has developed a national shutdown and startup overview, starting with a notification flow chart that takes place in the first four hours of the shutdown. It assumes no transactions in the next four hours and then a period of blackout when assets are secured. In the startup phase, connections start to be restored, leading to the go live phase when cash is up.

In each phase there are clear roles, responsibilities and actions assigned across stakeholders in the cash cycle.

CBDCs and cash: friends or foes?

A final session on CBDCs provided the bridge to the following day’s Digital Currency Conference, with a panel discussion involving the central banks of Ghana, Nigeria, the Bahamas and the UK. A review can be found in Currency News™ sister publication Cash & Payment News™.

The next Currency Conference will take place in May 2025 in Asia.