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EPC Newsletter
Issue 4 - October 2009

SEPA for Cash

Cashing outNational Central Banks commit to optimise cash handling in SECA: a progress report

30.10.09 BY Leonor Machado

INTRODUCTION AND SUMMARY

The EPC continues to push for a Single Euro Cash Area (SECA) seeking, amongst other objectives, to increase the efficiency of the wholesale cash processing cycle; e.g. the processes required to put euro bank notes and coins in circulation and to transport them. The ECB / Eurosystem which comprises the European Central Bank and the National Central Banks (NCBs) of those EU Member States that have adopted the euro published in 2007 a roadmap entitled "Measures for more convergence of NCB cash services" designed to promote the SECA objectives. Leonor Machado delivers a progress report and identifies the next steps.

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A main objective of the Single Euro Cash Area (SECA): improved efficiency of wholesale cash distribution

As reported previously in this Newsletter, it is necessary to reform the complex wholesale cash distribution and collection infrastructures needed to circulate euro bank notes and coins. The EPC believes that actions by all stakeholders within the euro area could contribute to reduce the high cost to society as a whole of processing and handling cash. To this end, the EPC promotes establishing the Single Euro Cash Area (SECA).

The plans for the SECA are developed in dialogue with the Eurosystem Banknote Committee (BANCO), banks and other key players such as cash-in-transit companies (CITs). The goal is to create an infrastructure for wholesale cash distribution; e.g. a level playing field featuring common service levels as regards the basic cash functions performed by National Central Banks.

Six NCB measures to optimise the cash process cycle

To this end, the ECB / Eurosystem in its role as issuer of euro bank notes (coins are a national responsibility) published in 2007 a roadmap entitled "Measures for more convergence of NCB cash services". At the same time, the roadmap encourages NCBs to implement a harmonised approach to electronic communication with professional parties. Specifically, the following measures form part of the ECB / Eurosystem roadmap:

  • 1. Implementation of "remote" access to NCB services

Each NCB is called upon to open its cash services to any professional clients such as banks, CITs and retailers, e.g. the professional party can deposit cash at any NCB branch. This allows the counterparty to transport the value of that deposit to t he closest NCB branch, regardless whether this is a branch of the NCB in the country where the counterparty is headquartered or a branch of the NCB of another EU country. Based on this measure, CIT companies will be able to optimise the cash transport routes which in turn will lead to cost and risk reduction.

  • 2. Acceptance of coin lodgements from professional clients at NCB counters

NCB branches should grant commercial parties (retailers) the right to deposit euro notes and coins directly to the NCB counter resulting in a shorter process chain.

  • 3. Electronic data exchange with professional clients for cash lodgements and withdrawals

Efficient and direct interfaces based on advanced information communication technologies (ICT) would greatly improve communication between NCBs and banks. Improved communication would in turn optimise processes such as ordering cash, accounting, identification of differences recorded during the cash handling process and, last but not least, reduce the instances of counterfeiting. Considering that SEPA - and, in consequence, SECA - aims to promote electronic information exchange, the replacement of communication methods relying on fax, phone and paper-based methods by modern ICT would in addition facilitate the inter-changeability of data in the wholesale cash distribution cycle.

  • 4. Relinquish the requirement to face and orientate banknotes for lodgements and withdrawals at NCBs

The abolishment of these requirements regarding lodgement and withdrawal of banknotes is decreasing the processing time required by banks and CITs to package banknotes for transport. NCBs seeking to implement this measure might have to upgrade their infrastructure to include modern banknote processing machines.

  • 5. Extension of opening hours and measures with similar effects

Extended and harmonised opening hours at NCBs enable banks and CIT companies to optimise lodging and transport schedules.

Implementation of a measure with similar effect, e.g. a Notes-Held-To-Order scheme (NHTO), whereby the NCB would grant the banks the right to hold (part of) its cash-volume in depot while the respective funds are on the balance of the NCB requires still further definition.

  • 6. Common packaging standards for NCBs and cash services free of charge

Standardising and even eliminating some packaging requirements for coins and notes will facilitate the interchanging and tracing of bundle types including their contents between banks, CIT companies and NCB branches across the EU.

The adoption of these measures will improve the efficiency and flexibility of the processes related to the cash cycle as a whole and, subsequently, reduces costs and risks.

Current status and way forward

The EPC Cash Working Group closely monitors the ongoing implementation efforts by National Central Banks based on the ECB / Eurosystem roadmap. Compared to 2007, the point in time when the "Measures for more convergence of NCB cash services" were starting to be implemented, substantial progress particularly in the euro area has been achieved. Also NCBs in the non-euro area are stepping up related activities to the immediate benefit of local banks and CIT companies. In the mid-term, driving forward the creation of a wholesale cash infrastructure in the non-euro countries will, in addition, greatly facilitate adoption of the euro in these countries once they might choose to do so.

Despite these positive developments, however, further steps need to be taken to fully realise the advantages of the Single Euro Cash Area, especially in light of the fact that some NCBs are considering reducing the number of their branches.

In particular, CIT companies must be able to establish cross-border cash transporting routes; e.g. they must be allowed to access the closest available NCB branch. The European Commission published a White Paper in May 2009 addressing this issue. The White Paper envisages common rules for the cross-border transportation of euro cash by road between Member States in the euro area. In addition, the European Commission ordered a study on the economic viability of cross-border cash transport in the EU. Further the European Commission plans to develop a proposal for a Regulation on cross-border euro cash transport by road during the first half of 2010.

The EPC continues its dialogue with the ECB on the improvement of the wholesale cash distribution cycle. Further results of this ongoing dialogue will be reported in the next issue of this Newsletter (January 2010).

Leonor Machado is the Chair of the EPC Cash Working Group.

Related Link:

European Commission: White paper on professional cross-border transportation of euro cash by road between Member States in the euro area

Related Article

Overcoming the Homer Simpson in us. How to create a less-cash Society (EPC Newsletter Issue 2)

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