Review of Banknote Distribution Arrangements: Conclusions Paper 2. Introduction
2.1 Background
The Reserve Bank is the sole issuer of banknotes in Australia, but it is only one participant in the banknote distribution system – commercial banks and CIT companies play a major role in getting cash to and from businesses and consumers. The declining use of cash for retail payments, accelerated by the COVID-19 pandemic, has placed increasing pressure on the banknote distribution system and its participants. Lower banknote turnover has led to underutilisation of cash distribution infrastructure and increased the average cost of transporting and processing banknotes.
Despite lower transactional cash usage, cash is expected to remain an important means of payment in the future, particularly as it is heavily relied on by some members of the community. Further, cash is an important back-up for electronic payment methods and is used as a store of wealth; this applies on a day-to-day basis but becomes particularly important in times of economic uncertainty.
For now, the Australian public has good access to cash. However, a reduction in coverage or service levels across the country could make access more difficult, particularly in regional and remote areas. Managing the impact of declining transactional cash use in an orderly way is important to ensuring the stability of the wholesale distribution system and the retail distribution system that relies upon it. Moreover, the distribution system needs to support the return of surplus, worn or damaged banknotes to the Reserve Bank; with record levels of banknotes currently in circulation, this will continue to be important well into the future, even as cash use declines.
Against this backdrop, the Reserve Bank initiated the Review to determine what changes could be made to the banknote distribution system so that it continues to be effective, efficient, sustainable and resilient as cash usage evolves. The Review sought to understand the financial and operational impacts of the decline in transactional cash use on private participants in the banknote distribution system, and how the current arrangements with the Reserve Bank – for the purchase and return of banknotes, and for managing the quality of banknotes in circulation – impact the ability of industry participants to meet banknote demand and adapt to the changing economic environment. In developing the responses to the issues raised, the Reserve Bank focused on ideas that would support the ongoing implementation of industry-led solutions and continued access to good-quality banknotes by the Australian public.
2.2 Process
In November 2021, the Reserve Bank released an Issues Paper that sought feedback on potential future changes to the banknote distribution system (RBA 2021). Thirteen submissions were received; respondents included banks, CIT companies, industry bodies, banknote equipment manufacturers and academia. Around half of the submissions came from parties that are directly involved in wholesale banknote distribution and engage with the Reserve Bank operationally on a day-to-day basis. The Reserve Bank met with some stakeholders bilaterally to gain a greater understanding of the dynamics of the banknote distribution system, as well as with other central banks facing similar trends. A number of submissions were provided to the Reserve Bank on a confidential basis; therefore, the discussion throughout this paper references stakeholder views in a general way. The public submissions have been published on the consultation website.[1]
2.3 Outline of paper
Section 3 of this paper summarises the feedback received from respondents to the Review and discusses the potential options for change. It explores what changes to the arrangements for banknote distribution could be made, including to the contractual arrangements the Reserve Bank has in place for wholesale banknote distribution and managing the quality of banknotes in circulation. It also considers the issues faced by industry participants and what could be done to address these. Finally, it summarises other issues raised by stakeholders, including those relating to cash access and acceptance.
Section 4 summarises the Reserve Bank's planned response.