G+D Promotes the Value of Cash for Society

In March, Currency News™ featured an interview with Dr Wolfram Seidemann, CEO of G+D Currency, on the topic of building a resilient cash infrastructure.

In the article, Dr Seidemann outlined the need for a resilient, efficient cash cycle in the face of changing cash usage, increasing volatility in demand, rising costs and the need for environmental sustainability. He introduced the themes of further automation in cash processing, digitalisation to deliver ‘cash visibility’ and standardisation, and the need for collaboration between stakeholders to meet those needs.

July’s G+D Currency Technology Symposium 2023 built on this, focusing among other topics on the social value of cash and what it could deliver.

Social value of cash

Ms Pearl Kgalegi, Head of Currency Management at the South African Reserve Bank (SARB), introduced the Symposium audience to the South African word ‘Ubuntu’ which is a sense of South Africa’s moral ideals, spirit of togetherness, and ability to work towards a common goal. In her presentation she alluded to cash as being one of the bonds that contributed to Ubuntu. Perhaps a useful word for what unites the cash community across the whole word.

Ms Kgalegi is also Chair of the Head of Currencies of the South African Development Community (SADC). SADC consists of 16 countries, 380 million people and is highly diverse. She gave a passionate explanation of how cash is an intrinsic part of the societies, binding people together.

Cash is increasing in all SADC countries. The reasons for this are many, including that no fees or costs are charged to pay with cash, informal trading makes up 35-40% of payments, businesses use cash and wages are paid weekly in cash.

Ms Kgalegi described South Africa’s 800,000 ‘stokvels’, which are informal credit unions based on cash. They are though, much more than that. They have an important social role because members meet frequently to share meals and time together, brought together by cash.

Prof Franz Seitz then presented common research on the role of cash in times of uncertainty, whether created by natural crises or societal-induced crises such as crises of confidence in the financial system, political uncertainty and uncertainty of digital infrastructure. He concluded that the results imply that cash always stabilises the overall situation and leads to a more resilient economy, but the type of crisis determines if this stabilising role is exerted by domestic or foreign cash.

It is essential, therefore, for central banks to guarantee a proper functioning of the domestic cash cycle in normal times, including access and acceptance of cash, but also sufficient production and storage capacity. Prof Seitz also called for a more impactful communication policy from central banks and stakeholders, rather than a ‘neutral’ stance.

The five ‘A’s of cash

In his March interview, Dr Seidemann stressed the core functions which keep a cash cycle alive, namely cash access, acceptance, availability and authentication. He added a fifth ‘A’ during the discussion at the Symposium – ‘affection’. People need to have a positive view of cash and G+D argues that this is an area where work is needed, especially for the younger generation.

Elaborating on this, Dr Julia Pitters from IU International University presented research results on changing perceptions of cash across generations. Associations to cash are often based on diverse human values. Some of these include tradition, security, privacy, independence, trust, inclusion and control.

She argued that there is a correlation between values and cash use. Values provide fertile soil for supporting cashless or cash orientated societies. Therefore, there is the need for those who want cash to define a cash strategy that positions a positive cash message to match the values of the target audience. For example, Gen Z like inclusion, privacy and sustainability. Baby boomers like tradition and patriotism.

Creating awareness for cash for younger people via marketing was one topic Dr Seidemann took up in his speech on the ‘Future of Public Currency’. Ideas for a Cash Campaign showed a number of advertisement scenarios where using cash was convenient or appropriate with a slogan that used the German word ‘Machbar’, which means possible. ‘Bar’ also means cash in German.

Cash and changing infrastructure

While the value of cash for society is much discussed, its interaction with central banks is less often mentioned. Public currency is a form of national infrastructure, and it provides a stabilising, unifying role in the economy and society. It is, of course, the only fully inclusive payment option, although cash doesn’t work in the digital economy model.

Whether central banks think of themselves as such, they are enablers of trust, innovators in the physical and digital economy, issuers of currency and facilitators of sustainable and inclusive government.

In less-cash countries we are seeing central banks being forced to engage as the (cash) market fails. In the UK, recent research said that 25% of people wanted to use cash at the point of sale, but only 15% actually do. People pointed to a lack of availability as the reason. In Austria the central bank now describes itself as ‘actively neutral’ and many central banks are taking direct action to sustain cash.

Although to varying extents, all central banks rely on external stakeholders for cash infrastructure (cash in transit companies, banks, ATMs etc.) and for these groups the opportunity to profit motivates their involvement. This level of private sector involvement may change, particularly if profit falls, which may make ensuring the cash cycle is flexible, resilient, low cost and efficient, more difficult.

Cash demand and a breathing cash cycle in the real world

The term ‘breathing cash cycle’ was used, ie. the ability to adapt to deliver in changing circumstances. A vivid phrase representing an interesting challenge. The drivers of cash demand are well known – population growth, GDP growth, inflation and crisis situations.

At the moment, we are seeing cash usage in transactions reducing due to digitalisation and changes in payment behaviour. When interest rates move from negative to positive there is also an immediate and marked change, as the Eurozone has recently witnessed. Franz Seitz presented data reflecting the volatility in changing cash demand.

A panel discussion with a central banker (Jelena Stapf from the Bundesbank), an Egyptian cash in transit company (Mohammed Amir from EgyCash), a US commercial bank (Robert Norman, Fifth Third Bank), and the retail sector (Oscar E Roche from FEMSA in Mexico) reviewed the position of cash and the cash cycle.

The debate started with looking at how to create a cash cycle that is both efficient and resilient. Key points were:
In a crisis trust is key. Resources and information sharing = resilience.
There is the need to think differently. Smartsafes allow fewer CIT visits, allow retail staff to serve customers rather than doing cash administration, and provide valuable data for the banks and retailer. Just in time cash management is coming.
Cash is an opportunity, as FEMSA has found. Every store now has a cash recycler and they have founded a bank, a fintech, based on their cash work.
Lean processes help deliver low costs.
Cash acceptance is a national requirement and legislation is going to be needed.
Cash is profitable for banks.
Faster payments will reduce card company fees. The reaction to this will lead to cash volumes increasing as a result.
Changes drive customer behaviour, therefore opening new store functionalities will increase cash use, which will mean they will need more cash beyond the stores natural cash flow.

Value of cash has its dynamics

Perhaps the two big take aways from all this are, first, the concept of a ‘breathing’ cash cycle, which is about organisational and infrastructure resilience and flexibility and, second, the importance of and need for ‘affection’ towards cash.

Whilst there is significant goodwill for cash, there is the need to build on this using the human values of the different audiences to connect them to cash and each other.

For both ideas, cooperation and coordination across and between all the stakeholders is needed to maximise the impact.