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Building a More Resilient Cash Cycle

Categories : Cash and Crises, Cash does not require a technology infrastructure, Cash generates security, Cash is a contingency and fall-back solution
February 10, 2023
Tags : Cash Infrastructure, disaster recovery, Resilience
Crises such as the Covid-19 pandemic and the Russian invasion of Ukraine demonstrate the importance of a resilient cash cycle. Several countries are taking measures to further secure the supply of cash in times of crisis.
Guillaume Lepecq

Chair, CashEssentials

This post is also available in: Spanish

Cash plays a key contingency role in disaster recovery and crises. The cash cycle has shown its robustness and resilience in times of natural and made-man disasters. The Covid-19 pandemic demonstrated this with the unprecedented increase in cash demand in 2021, when 75% of the world’s currencies experienced double-digit growth (Heinonen). “The resilience of cash as a social institution reminds us of the importance of understanding the economic functions of money beyond just the innovations in technology.” said Hyun Song Shin, economic adviser for the Bank for International Settlements.

Three factors, however, challenge this resilience.

Figure 1. Global Risks Map, 2023World Economic Forum

Several countries have recently announced measures to improve the resilience of the cash cycle.

Increasing Cash Stocks

In Germany, the authorities, including the Deutsche Bundesbank, the financial market regulator BaFin, and industry organizations such as BDGW, the cash-in-transit association, are stepping up preparations for emergency cash deliveries in case of a power outage. The plans include increasing cash stocks held by the central bank and imposing limits on cash withdrawals to cope with a surge in demand, reports Reuters. In 2011, a report on the consequences of a permanent power outage commissioned by the Bundestag warned that “resentment and sometimes aggressive arguments” could result if the cash supply collapsed. “People are afraid that they will no longer be able to procure food and other basic necessities,” the report said. The cash-in-transit association asks to be assessed as part of critical infrastructure and given priority access to fuel and telecom services, according to FAZ.

Ensuring Cash is a Critical Infrastructure

According to Les Echos, in cooperation with national authorities, the European Central Bank has undertaken a comprehensive assessment of risks and introduced emergency policies to ensure the production and distribution of banknotes throughout the economy in case of a blackout. In France, the Banque de France has reached out to local authorities to ensure that they prioritise its 23 regional branches in the case of local power outages. All branches have been equipped with power generators, as have cash-in-transit companies. For Michel Tresch, head of Loomis France, essential lessons were learnt in 2020 when extreme weather events led to flooding and power cuts in the southern Alps. At the time, security services distributed cash and “autonomous ATMs were deployed within 72 hours, a key priority to enable a semblance of a normal life”, adds Tresch.

Storing Cash in Emergency Kits

Securing the Supply of Cash

In December 2022, the Swedish Riksbank proposed that to secure the supply of cash, other actors than banks or bank-owned companies should also be allowed to enter into agreements to withdraw or deposit cash from its depots. The Riksbank also proposes that such actors be able to enter into an agreement on compensation for interest expenses from the central bank.

This post is also available in: Spanish