Looking Back, Looking Forward – What Does 2024 Have in Store?

As has been customary at the start of the year in the past, we have invited stakeholders and other participants in the cash community to give their views on key trends and likely developments for the coming year.

This year, we hear from a broad cross-section of representatives who between them represent most stakeholder groups – Kathleen Young from the Federal Reserve, Doris Schneeberger from the European Central Bank, David Hensley from Enryo, Ruth Euling from De La Rue, Stuart Mackinnon from NCR Atleos, Marci Chavez from the International Association of Currency Affairs and Mark Cartwright from the Mint Directors Association.

Visibility and Collaboration Go Hand in Hand

Marci Chavez, Executive Director, International Association of Currency Affairs (IACA)

IACA represents all the key stakeholders in the cash industry including central banks, banknote printers (both independent and state owned), substrate and feature suppliers, equipment manufacturers, mints, and cash distribution and management companies.

Our members span the world from heavy cash user countries to minimal cash user countries. We surveyed our members in 2023 asking what issues were top of mind. ‘Challenges and opportunities in the cash cycle’ dominated. We believe this will be the continued focus for the industry in 2024.

For those countries where cash use is declining, the central banks have realized accessibility, acceptability and availability are at risk – so they must look to their cash cycle stakeholders or potentially legislation, to help support the cash infrastructure.

For those countries that are still heavy cash users – their cash cycle stakeholders are facing heavy costs, and the central banks are seeking opportunities for improving efficiency and effectiveness.

In both cases – an efficient, resilient, and sustainable cash cycle is KEY – and central banks seem to be making that their focus more than ever before.

Throughout 2023, IACA held a number of member discussion meetings to better understand what topics and themes within the cash cycle were of most interest. Visibility was the stand-out theme. Many central banks really have no idea of the extent of their cash cycle – who delivers cash, when, and how often. To exacerbate the issue there is little exchange of data across the system. Visibility throughout the entire cash supply chain requires collaboration and many central banks are now bringing their cash cycle stakeholders to the table to learn more.

The central banks that have better visibility (usually low cash use countries) are also working with their stakeholders – particularly the retailers, recognizing their important role in the cash system to ensure cash remains easy to access and accepted.

In summary – visibility and collaboration go hand in hand, and we will surely see efforts around these key themes in 2024 and beyond, and IACA will be helping to facilitate discussion and progress ideas with our membership.

Demand for ATMs Evolving and Growing

Stuart Mackinnon, Chief Operating Officer, NCR Atleos

We saw cash transaction volumes on the 80,000 ATMs we operate up by 12% in the last year.

In addition, particularly in Advanced Economies (AEs), banks are investing in self-service equipment such as cash recyclers and ‘Integrated Teller Machines’ (ITMs) in response to fewer bank branches and the wish of banks to free up staff to work with customers. In Emerging Market Economies ATM networks are growing fast as banks rush to keep up with the growth in bank accounts. To date that growth has led to more cash usage, with ATMs as the preferred means of accessing it.

There has also been a clear move in favour of ‘ATMs as a service’ as banks, particularly those without very large scale ATM networks, want to have a predictable, and lower, cost base and also be able to control the quality of their ATM services. It also helps them upgrade their ATM capabilities without the major upfront capital costs associated with that.

While some countries have gone down the utility model for ATM provision, we have introduced Allpoint, a surcharge free network that allows banks to move cash services into the retail environment, combined with other banks, but still retain their branding.

Interestingly sustainability has moved centre stage in the last six to nine months, appearing in tenders in a way it hadn’t before. We have been working on initiatives to reduce power use and the life cycle impact of our ATMs. While recirculation policies are long established, recycling of banknotes close to the point of use is relatively new. We are offering customers guidance on both.

We believe cash demand will remain steady overall in 2024 and that the trend to ATMs as a service, investment in more capable machines and a strong focus on sustainability will be centre stage this year.

What 2024 Holds for Cash?

Doris Schneeberger, European Central Bank

25 years ago, the euro became the single currency in 11 countries, with euro cash being introduced in 12 countries three years later, in 2002. The euro is the second most important currency worldwide, serving the economy and making life easier for more than 350 million people in 20 countries now. It is therefore also exposed to worldwide developments and challenges such as the pandemic, war, energy crises, that have impacted euro cash production and demand. Digital means of payments have also gained importance.

However, as our payment attitudes study in the euro area (SPACE) shows, cash remains a core means of payment for European citizens.

So what does 2024 hold for euro cash? First of all, we hope for a year with steady banknote production and demand where we can focus on further improving the environmental impact of our banknotes, on continuously improving production and supply and on keeping a close dialogue with our stakeholders.

The key topic to address throughout 2024 is access and acceptance of cash. Only by guaranteeing good access to cash and its broad acceptance as a means of payment, can we ensure the trust of citizens in their currency.

Here, the EU proposal for a regulation on the legal tender of euro coins and banknotes is a milestone to safeguard the role of euro cash which must be accepted as a means of payment everywhere in the EU and accessible for both citizens and businesses. The ECB will actively contribute to the progress of this legal act, in particular by working on the indicators to measure access to cash.

A key reference point for all these discussions are our studies on the payment behaviour in the euro area. Towards the end of 2024, we will publish our payment attitudes study SPACE 3 presenting the latest data on the use of cash as well as assessments on access and acceptance of cash.

To ensure the trust of citizens, we also work on the development of new euro banknotes to make them fit for the future. Here, we are focussing on technical innovations of the product, on reducing the environmental impact of the banknotes and the cash cycle and, last but not least, on the redesign of the notes. After choosing ‘European culture’ and ‘Rivers and birds’ as possible themes for future euro banknotes, in 2024 we will select the motifs that best illustrate these themes. Following this, work will start on preparing a design competition.

No matter what we will see in 2024, we are fully committed to keeping cash accepted and available.

Outlook for Cash a Complex Tapestry

David Hensley, Director, Enryo

The outlook for the cash industry in 2024 is a complex tapestry woven with threads of decline, resilience, and potential adaptation. Here are some key things to watch out for.

Continued Decline

Cashless adoption: The trend towards cashless payments is likely to continue, driven by the convenience and security of digital transactions. Mobile wallets, contactless payments, and peer-to-peer transfers will chip away at cash usage, especially in urban areas and among younger generations.

Regulation: Governments may introduce policies discouraging cash use, such as limiting cash transactions for large amounts or levying surcharges on cash payments. This could further accelerate the decline of cash.

Unexpected Resilience

Unbanked populations: A significant portion of the population across the globe still lacks access to bank accounts or reliable internet connectivity. This demographic will continue to rely on cash as their primary means of payment.
Emergencies and infrastructure disruptions: Cash remains a crucial fallback option in emergencies or when digital infrastructure fails. Power outages, cyberattacks, and natural disasters can highlight the continued importance of physical currency.
Cultural preferences: In some cultures, cash holds a strong social and symbolic value. These preferences may resist the shift towards cashless transactions, slowing down the decline of cash in certain regions.

Potential Adaptation

Cash innovation: The cash industry is not sitting idle. Central banks and mints are exploring innovations like polymer banknotes, enhanced security features, and anti-counterfeiting technologies to make cash more secure and durable.
Cash-in, cash-out networks: Expanding networks of ATMs and cash deposit-withdrawal points can maintain access to cash in remote areas and for unbanked populations.
Collaboration with FinTech: Partnerships between cash-based services and FinTech companies could unlock new possibilities, such as cash-to-digital conversion services or cash-backed digital wallets, blurring the lines between the two worlds.

Overall, the future of the cash industry in 2024 remains uncertain. While the decline is likely to continue, its pace and impact will vary depending on factors like regional differences, regulations, and cultural preferences. It’s also important to remember that cash, despite facing challenges, will likely maintain its relevance for a significant portion of the population for the foreseeable future.

A Year to Plan Ahead and Adapt

Ruth Euling, Managing Director Currency, De La Rue

Predicting the future is always challenging. 56% of chief economists currently expect the global economy to weaken in 2024 whilst another 43% foresee unchanged or stronger conditions, according to the World Economic Forum. This isn’t a surprise when considering the uncertainty ahead.

The Red Sea crisis is disrupting supply chains. Paper substrate supply has already faced challenges after the loss of approximately 30,000 tonnes of paper substrate capacity in recent years. So, it’s important that issuing authorities plan further ahead (compared to normal) to ensure their needs are met.

It’s especially important to plan further ahead in the context that several new banknote series were delayed between 2020 to 2023. This has led to a growing backlog of overdue banknote design projects.

Three years ago, in the January 2021 edition of Currency News we correctly predicted the ongoing transition to polymer banknotes – it came true with 29% of all issuing authorities and 18% of all denominations now on polymer. SAFEGUARD® celebrated 10 years, billions of banknotes and over 100 notes last year. This significant trend towards polymer is set to continue.

Three years ago we also predicted the ongoing industry-wide focus on our environmental impact – an area where competition truly drives us all to be better. This trend is also set to continue. We’re proud to be the first currency provider to sign up to the Science-Based Targets Initiative and the only one recognised as a European Sustainability Leader by the Financial Times. We expect others to follow us.

The nuance around sustainability is shifting though and the conversations are being more mature. Water usage will gain more focus in 2024. Polymer banknotes use 96% less water than paper banknotes throughout their lifecycle – a fact that will become increasingly important. We also predict a shift in emphasis on banknote waste as our industry explores how ‘waste’ can enable necessary objects without requiring virgin materials.

As we advance in this area we need to recognise that the costs and time associated with growing sustainability demands can be significant. As an industry we need to work together to ensure we become more sustainable in a considered and fair way.

And finally, some well-known security features are nearly 20 years old and pattern-based movement is no longer state-of-the-art. We are seeing a growing younger population that don’t know how to authenticate banknotes. We know this comes with an increased risk of counterfeits being passed as genuine notes. We predict a shift towards novel image-based effects that can’t be replicated commercially and aid public education by being intuitive to authenticate.

These new security features will be based on the latest surface-relief micro-structure and holographic technologies. True depth effects, smartphone interactivity and complex movements will be cleverly integrated into banknotes. Intelligent design, especially when combined with the untapped potential of SAFGUARD® polymer, will unlock new and engaging design and security feature possibilities.

Focus Moves from Reconnection to Unity

Mark Cartwright, Executive Director, Mint Directors Association

As the incoming Executive Director of the Mint Directors Association (MDA), I am looking forward to consolidating the newly formed association to enable it to deliver upon its mission. The MDA is the ideal vehicle for all industry participants to connect, exchange information and demonstrate models of good practice for the betterment of the entire minting ecosystem.

In reflecting on 2023, I consider it a year of re-connection after nations re-opened their borders post-pandemic. Despite many of us becoming increasingly comfortable with utilizing technology to maintain business (and personal) relationships, a virtual meeting is still no substitute for the real thing.

This was evidenced by the outstanding participation at the successful 2023 Mint Directors Conference (MDC) hosted by the Royal Canadian Mint in Ottawa. 255 people across the full breadth of industry were in attendance and immersed themselves over the two- day summit.

Key themes included the importance of the maintenance of cash as payment option for citizens around the world, as well as the growing expectations relating to environmental, social and governance responsibility from both citizens and governments alike.

MDC provided the perfect platform for conference attendees to exchange perspectives, hear from industry experts, rekindle old connections and establish new ones.

Building on the 2023 theme of re-connection, in my view a key focus area for 2024 should be unity. There is much to be gained by working collegiately, casting a critical collective eye across the entire system to identify opportunities to establish our credentials as an industry of high integrity, environmental good practice and creators of significant public value.

The MDA will be working tirelessly to be the forum where meaningful exchanges take place and to promote awareness of the mint industry’s role, contribution and significance during 2024. I sincerely hope that you can support us on this journey.

I will leave you with a quote I enjoy from Freeman Dyson, an eminent American Physicist: ‘the purpose of thinking about the future is not to predict it but to raise people’s hopes.’

Latest Cash Trends in the United States

Kathleen Young, Executive Vice President and Chief of FedCash Services, Federal Reserve

US currency and coin in circulation continues to grow year-over- year, with $2.35 trillion dollars circulating in 2023 ¹. Cash demand has stabilized post-pandemic and remains strong both domestically and internationally, and cash continues to be the third most used payment method ².

For the last three years, cash use has changed little, with consumers using cash for approximately one in five payments (19%) since 2020. Consumers’ store-of-value cash holdings have continued to exceed pre-pandemic levels.

Through collaborative efforts with the US Coin Task Force, the coin supply chain has stabilized after nearly three years of circulation challenges following the pandemic. Coin circulation patterns normalized in 2023, aided by demand that is below historical averages. The Federal Reserve continues to work with coin supply chain partners to understand how coin usage patterns have changed in the post- pandemic economy.

The Federal Reserve Banks offer FedCash® Services to help ensure that depository institutions have sufficient supplies of currency and coin to meet public demand. Through FedCash Services, we are committed to advancing technology and delivering greater standardization of services across the Federal Reserve System to improve efficiency, security and risk management of currency and coin processing.

A recent example of modernization within FedCash Services includes the development and deployment of a new fleet of machines, sensors and software to support Federal Reserve cash processing operations for the next 20 years. These machines include a common detector interface (CDI2) creating an international standard for sensor integration.

The recently launched Federal Reserve E-Manifest Service, part of the US cash industry’s Cash Visibility initiative that support GS1 Standards, greatly improves transparency and efficiency of cash supply chain logistics. The FedCash E-Manifest Service replaces manual process of matching paper manifests for currency deposits and orders at Federal Reserve docks with technology that enables scanning and electronic exchange of data.

Investments like these support both scalability and resiliency strategies for FedCash operations, and in both cases the use of industry standards benefit not just the Federal Reserve, but the domestic and international cash community as well.

Over the next several years, the Federal Reserve Banks will modernize processing capabilities by replacing aging equipment and driving further efficiencies in the space, and we will also be preparing for the release of a new family of US banknotes. Our success in these efforts, meeting our Federal Reserve mission and remaining good stewards of the public’s funds, will depend on close collaboration, unprecedented coordination and strong relationships among all US cash industry stakeholders. Ultimately, collaboration with industry partners is essential to building a resilient cash supply chain that meets public demand.

1 - Federal Reserve Board: Federal Reserve Balance Sheet – Factors Affect- ing Reserve Balances – H.4.1 – www.federalreserve.gov/releases/h41/

2 - Federal Reserve Bank of San Francisco: 2023 Findings from the Diary of Con- sumer Payment Choice (May 5, 2023) – www.frbsf.org/cash/publications/fed- notes/2023/may/2023-findings-from-the-diary-of-consumer-payment-choice/